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Technology Stocks : How high will Microsoft fly? -- Ignore unavailable to you. Want to Upgrade?

To: tonyt who wrote (43996)	4/30/2000 9:15:00 PM
From: Harvey Allen	Respond to of 74651

Microsoft Likely to Languish as Ruling Looms, Analysts Say By David Ward Redmond, Washington, April 30 (Bloomberg) -- Microsoft Corp. shares are likely to lag the larger market and its competitors in the coming weeks as the judge in the government's antitrust case considers a request to split the company, analysts said. The U.S. Justice Department on Friday urged U.S. District Judge Thomas Penfield Jackson to divide Microsoft in to two companies to end what it sees as anticompetitive practices in the software industry. The judge is expected to rule on the proposed remedy in the next few months. The threat that Microsoft could be broken up -- even with the certainty of appeals that would keep the case tied up in court for several years -- will likely keep Microsoft shares from rising, and shares could keep falling until the judge decides whether to order a breakup of the world's largest software maker, analysts said. ``There will be lengthy appeal process and it's not clear how the process plays out,'' said Mark Specker, an analyst at SoundView Technology Group with a ``strong buy'' rating on Microsoft. ``I'd expect the stock to trade sideways and down. This is going to hang over the company for awhile.'' The shares could rise, however, if Jackson decides to reject the government's request to break up the company, and instead settles on less dramatic remedies, analysts said. Priced In The stock goes ``up 10 percent if the judge doesn't order the company broken up,'' said William Welch, managing director of Fiduciary Asset Management, with $155 million in assets, who owns Microsoft shares. He said that most of the concern about the antitrust case is already priced in the stock. ``I don't think you sell it now, this would be the worst possible time,'' he said. Microsoft shares fell 1/16 to 69 3/4 in Nasdaq Stock Market trading before the government proposal was announced. Shares rose 1 to 70 3/4 in after-hours trading. In the longer term, investors are split on whether the parts of a split Microsoft are worth more than the sum. Microsoft would become independent entities, with one selling the Windows operating system and another in control of software applications, under a proposal submitted by the Justice Department. Many investors and analysts are mulling a software industry with Microsoft as two companies -- each with a dominant position in its industry -- though without the ability to use its separate parts and combined revenue to boost sales. ``When you split a pretty dynamic company like that in half, it dilutes overall value,'' Welch said. ``Still, Microsoft split in two is still going to be Microsoft, and I think it should be bought for long-term growth potential.'' Valuing a Split CIBC World Markets Inc. analyst Melissa Eisenstat estimates that based on current sales growth and Microsoft's price-earnings ratio, the two split companies would combined be worth between $52 to $59 a share, below its current price of 69 3/4. However, if the split companies were valued by assuming they would have close to the same price-earnings ratio as competitors such as International Business Machines Corp., Sun Microsystems Inc., and Novell Inc., they would be worth $134 a share, CIBC concluded. ``We regard this as the range in which the stock could trade while the lawsuit rages on,'' Eisenstat wrote in her analysis. A split Microsoft could bring value to shareholders in the long run, analysts say. The government proposal would create independent companies. The first would sell Windows, which currently power about 95 percent of the world's personal computers. The second would sell Microsoft's applications such as word processing, spreadsheets and file systems, and would control its Internet business. Analysts say that the application company could begin writing its programs for competing operating systems such as Linux, as well as in the market for computer systems run on large servers. That could be a boon for companies such as VA Linux Inc., Sun Microsystems Inc. and others that sell operating systems that compete with Windows. For its part, Microsoft warned that a split would harm shareholders and the company. ``No one should think shareholder value will be preserved with this split,'' said Microsoft Chairman Bill Gates. ``This is a research intensive company, and what we have are smart people that work together as a team, and its only by working together are we able to do our best work.'' quote.bloomberg.com