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Politics : Idea Of The Day -- Ignore unavailable to you. Want to Upgrade?

To: IQBAL LATIF who wrote (31359)	5/4/2000 7:05:00 PM
From: IQBAL LATIF	Respond to of 50167

<<Why Microsoft is Worth Less Kevin Prigel May 4 2000 The argument has been tossed around freely by the press and certain analysts that many Microsoft's are better than one?that somehow a broken-up giant can better pursue profit goals than one behemoth. This is a pure misunderstanding of basic economics. Bill Gates has it right: a broken-up Microsoft is bad for investors. Here is a little step-by-step explanation: In its current state, Microsoft is a monopoly. This monopoly leverages one central platform to realize profits that cannot be realized by a firm in a competitive market. Microsoft's monopoly power allows the company to realize net margins (net income/revenues) of nearly 40 percent. Software companies without monopoly power (ie. Oracle), realize net margins of less than 20 percent. A broken-up and restricted Microsoft will no longer be a monopoly and will no longer realize monopolistic net margins. Net margins of 20 percent would slash profitability for Microsoft in half, to $0.85 per share this year. Future growth rates would dramatically fall, as Microsoft would no longer realize the other oddity of monopolies: increasing margins with increasing revenues. The price/earnings ratio of the company would thus contract with lower growth prospects and increased government oversight. Assuming that Microsoft was a fairly valued pre-monopoly decision at $110, a monopoly P/E for the company is about 65x current year earnings. I'll be genenrous, and assume that, under this scenario, the fair P/E is 50. This exercise leads to a fair value for a split-up Microsoft, unable to wield monopoly power, of $42.50 per share. >> A point of view I don't subscribe..