JohnD- Keep the faith. Here is a little reading material to keep your focus:
What's next for Microsoft - more
doom, gloom or are better days ahead?
by Paul Andrews
Special to The Seattle Times
A soft earnings report, a rumored breakup, a plummeting share
price: The news surrounding Microsoft these days has swirled into
a black cloud. Here are some answers to questions recent
developments may have prompted.
Q. Is this the beginning of the end for Microsoft?
A. The optimist would ask instead: Could this be as bad as it
gets? While bad news seems to be piling on the Redmond
company, some analysts say the computer business is set to
undergo a post-Y2K upgrade cycle that will fatten
personal-computer sales and Microsoft earnings. Moreover, the
antitrust case is a long way from resolution, and even if Microsoft
were broken up, analysts think shareholders could benefit. Many
point to the breakup of AT&T, in which the value of the resulting
companies exceeded that of the intact one.
Q. What about Chief Executive Steve Ballmer's internal e-mail,
made public yesterday, in which he said the company was
doubling annual stock grants to Microsoft's 34,000 employees,
locked in at Monday's price of $66.62?
A. Ballmer's move basically protects employees from feeling the
brunt of a depressed stock, down 45 percent from its all-time
high. Even at the $66.62 price - a 16-month low - employees
with more than a couple of years at Microsoft are still well ahead
of their option prices, or the price they actually pay for the stock.
But employees hired after the stock peaked have options that at
the current price are virtually worthless. Ballmer is guaranteeing
that stock options are something worth working for - on the
assumption that the stock recovers rather than continues to
decline.
Q. Why would Ballmer make such a move?
A. Primarily, he wanted to get employees' minds off the stock's
tailspin. But Ballmer characteristically has been optimistic about
Microsoft stock. In 1989, after one of the stock's rare declines in
the wake of similar legal uncertainty over an Apple Computer suit
against Microsoft over Windows, Ballmer purchased 945,000
shares. Eventually the move made him a multibillionaire.
The move also may result in an added incentive to keep
employees in tow. In recent months, the company has lost a
number of key people, including high-level executives, to other
ventures.
Q. What about investors?
A. A similar situation prevails. Longtime investors in Microsoft are
well in the black because the stock's value has shot up
tremendously over the years. Short-term speculators are under
water right now, but some analysts say this is the best buying
opportunity for Microsoft since the "Black Monday" crash of
1987.
Q. So what's the short-term outlook?
A. In a word, stability. Once the Department of Justice puts its
proposed remedies on the table by the end of this week, there
may be less to speculate over for at least a couple of months,
which means less uncertainty. And the market dislikes uncertainty.
There will be more focus on the legal problems, as hearings
before the judge on potential remedies begin in May. As the
proceedings continue, the market is likely to settle down and
focus more on Microsoft's fundamentals.
Q. How so?
A. Microsoft's Windows 2000 upgrade is just getting started,
though it's not clear how the legal process may affect it, if at all. Its
consumer businesses, Windows 98 remains strong, and MSN is
making a big push once again.
Companies expanding their business-to-business and
business-to-consumer relationships, as well as Internet-driven
start-ups doing Web applications, could drive huge sales of
Microsoft's Windows 2000 client-server products tailored to the
Web.
Supplementing its own businesses are Microsoft's cash balance of
$21 billion and $23 billion in investments. The interest alone is a
substantial boon to the company's balance sheet.
Q. What happens to the Windows if the company gets broken
up?
A. Some critics have suggested that the Windows division itself be
broken into competing companies, a process they think would
improve the operating system through competition while ending
the monopolistic domination Microsoft has had.
Other proposals have focused on two companies - one for
Windows and another for Office and applications - or three
companies: Windows, Office and Internet applications, and
services such as MSN, Pocket PC, Carpoint, Investor and so on.
The Washington Post, citing people close to discussions of the
government's proposal, said yesterday that current thinking is to
divide the company into two, with each unable to deal with the
other for a decade. The Windows company would develop its
own applications and the applications company, which would
contain the rest of Microsoft's operations, would be forced to
develop its own operating system or cut deals with Windows
competitors.
Q. Would a breakup benefit shareholders?
A. Some analysts have suggested as much. But David
Readerman, an analyst at Thomas Weisel Partners in San
Francisco, said in a report last fall that the pieces of a split-up
company would have 31 percent less value than an intact
Microsoft.
Q. What about the industry at large?
A. Splitting apart the Windows-Office-Internet relationship could
create more competition in the industry. For consumers, that
would likely mean more choice of products.
The tradeoff would probably be more incompatability between
products as well. PC owners who have grown accustomed to
browsing, sending files and e-mail over the Web, and corporate
networks using Microsoft products may face a new learning
curve.
Q. What does Microsoft say?
A. Company Chairman Bill Gates told The Associated Press that
the relationship between Windows and Office has helped
standardize the personal-computer market, benefiting not only
desktop-computer users but Internet users as well. "We need to
have our research people, our Office people, our Windows
people all in one group, taking breathtaking risks on this
breakthrough user interface that is delivered in this next phase of
the Internet," Gates said. Q. Can we expect more rashes of bad
news?
A. Within a few weeks, Microsoft must come up with its own set
of proposed remedies, which as one of its biggest supporters in
Washington, U.S. Sen. Slade Gorton, has pointed out, is tough
for a company that thinks it has done nothing illegal. Then the
judge in the case, Thomas Penfield Jackson, will issue his
remedies, expected sometime in the summer. There may be
turbulence sparked by speculation over Jackson's decision.
Q. Will Microsoft stock take another hit when Jackson rules?
A. Jackson's remedies are expected to be harsh, although some
analysts say he will stop short of recommending a breakup, which
they view as likely to be overturned on appeal. If Jackson does
recommend a breakup, the stock could suffer once again. The
appeals process, even under an expedited schedule, could take a
year or more.
Q. Is the current stock disruption the result of the antitrust
proceedings?
A. The fact is Microsoft would be facing closer market scrutiny
even without news leaks about the government's intentions. The
company put a damper on profit and sales expectations into 2001
when it released its third-quarter-earnings report last week. Some
key analysts reduced their ratings on Microsoft stock's
attractiveness after the report.
For all its dominance in desktop computers, meanwhile, Microsoft
has not clearly demonstrated it can compete against the new wave
of Internet-driven businesses, from Palm hand-held computers to
America Online to Web services to wireless Internet access. It is
trying but is a distant player in many cases.
Q. What about the continued Windows upgrade path?
A. A significant issue will be whether companies and consumers
see a need to replace Windows and Office software they own
with next-generation versions. Microsoft upgrades have
traditionally driven new PC sales and vice versa. If the Internet
renders PC operating systems and applications less vital, as many
predict, it could "milk out" the traditional Microsoft Windows cash
cow.
Q. Bottom line: Do I hold, buy or sell?
A. Depending on your personal reading of the indicators, the
answer is yes.
seattletimes.com |
