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To: bob zagorin who wrote (27565)	2/20/2006 3:22:47 PM
From: bob zagorin	Respond to of 57684

Microsoft's Source Code of Irritation The Goldman Sachs Group 1 New York Plaza New York, N.Y. 10004 (Tel) (212) 357-0005 MICROSOFT FILED ITS RESPONSE to the European Commission in a dispute over whether it has complied with the EC antitrust order in making technical interface specifications available to competitors. Microsoft asserts that it has complied with the EC order stating it has devoted 30,000 hours to producing over 12,000 pages of technical documentation and offering up to 500 hours of technical support to help competitors understand the information. Microsoft has also offered to make its source code available, which some competitors in the open source community are reluctant to accept, given license restrictions that would impose. Microsoft filed two expert reports it characterized as being produced by independent software systems engineering professors who examined the technical documentation created by Microsoft and concluded "that the interoperability information as provided by Microsoft meets current industry standards, particularly in such a complex domain." Microsoft states that this conclusion is noted in a 49-page report authored by five computer science professors located in the U.K. and in Germany. Microsoft has maintained that the EC continues to raise the bar on what it expects from Microsoft and that the commission "repeatedly refused to clearly define its requirements and concerns, despite repeated requests and accommodations by Microsoft." In our view, Microsoft will be pushed to do a better job of documenting these specifications, perhaps by the imposition of fines. Perhaps it has chosen to push back and get a brighter line definition of how accommodative it needs to be, even if this means taking a fine for a few months as part of the process. Microsoft's appeal on the original antitrust decision goes to the Court of First Instance in Brussels on April 24. It is not clear exactly what Microsoft is expecting to accomplish on its appeal to the Court of First Instance, but we are assuming the decision of the EC requiring disclosure of technical specifications to permit competitors to interoperate with Microsoft's server products is not going to be reversed, and Microsoft has already agreed to do this in the U.S. as well. We expect this high-stakes drama (with overriding political intrigue, which makes for fascinating headlines in Europe and the U.S.) will likely escalate and last for a while longer before coming to the necessary resolution, although we do not believe the dollar amounts are so large that this issue should be center stage for the stock; it is more of a side show, in our view A fine of $2.4 million per day would equate to $72 million per month, or $50 million after tax (31% tax rate), or about half a cent in earnings per share per month. --Rick G. Sherlund