the latest 74% blowout earnings report becoming a distant memory
this was stuffed in my mailbox last evening.
regards
---JRArena@aol.com wrote:
>
> Microsoft Musings
>
> The High Tech Arena 2/21/99
> By Joe Arena
> Editor
>
> With the recent 17% decline in Microsoft stock, and the latest 74% blowout
> earnings report becoming a distant memory, there are a myriad of investors
> searching for answers. There are many different explanations for this
> correction. One, the parabolic chart pattern; the stock had simply come too
> far too fast despite the company's growing dominance. Two, the realization
> that Dell cannot continue to defy the law of large numbers forever cast a pall
> over Microsoft and most of the technology sector. Three, the perceived threat
> that IBM's support of Linux could represent a major paradigm shift. (we have
> discussed this at length in a previous edition of The High Tech Arena, and do
> not at this juncture see any material impact on earnings going forward)
> Notwithstanding, the market is a discounting mechanism, and the most salient
> rationale for the pullback in Microsoft stock is related to an increasing
> cognizance that the DOJ will win round one of the trial. Certainly, the rash
> of legal blunders and lack of preparedness that Microsoft lawyers and
> witnesses have displayed has been most disconcerting for investors to watch.
> For those shareholders glued to CNBC daily, the appearance of Hampton Pearson
> documenting another daily legal faux pas has been agonizing as well.
> Certainly, the courtroom brilliance of David Boies, who has succeeded in
> stultifying virtually every Microsoft witness, has also been a major factor in
> shaping the perception that the DOJ will prevail.
> Lest investors lose sight of the big picture here and get too concerned, we
> assert that this first round is merely a tempest in a teapot. First and
> foremost, the unique nature of the trial obscures the fact that Microsoft has
> submitted voluminous evidence in preparation for an inevitable appeal which
> has not been rebutted. The flamboyant courtroom theatrics of David Boies
> sells newspapers and draws traffic to biased anti-Microsoft web sites, but at
> the end of the day will have little bearing on winning the case.
> It is well within the realm of probability that the appeals process (which
> should drag on well into 2000 at the very least) will find for the defendant,
> as the deck has been stacked against Microsoft in several ways. The Justice
> Department has had over three years to prepare for the case, compared with
> only 8 months for Microsoft. (could this be why their lawyers and witnesses
> alike appear to be so inept)? This fact in and of itself could very well be
> sufficient to overturn a negative ruling. Consider that in a typical antitrust
> case, just the discovery process can take in excess of one year. What else
> bodes well for a Microsoft appeal in this veritable kangaroo court? It can be
> surmised that Judge Jackson is prejudiced in this case, and we must reiterate
> the significance of the appeals court overturning his preliminary injunction.
> Furthermore, Microsoft lawyers have done at least one thing well, and that is
> being exceptionally diligent in terms of conforming to technical procedures.
> This further increases the odds of a reversal by an appeals court.
> Finally, and perhaps most significantly, since Microsoft has been limited to
> only 12 witnesses, they have been precluded from cross examining all those who
> have submitted written testimony against them. (this is contrary to a
> constitutional right) As an example, consider a case where a murder witness
> presents written evidence, but cannot testify because she is dead. In this
> scenario, the evidence is not admissible.
> That being said, what if the unthinkable occurs and Microsoft loses? The
> most obvious remedy would be breaking up the company. (anyone think Microsoft
> is being proactive by the recently announced reorganization)? This remedy
> would be highly unlikely, as something intangible as intellectual property
> cannot be divided in the same manner that Standard Oil and AT&T were. A
> breakup would also adversely affect consumers, (who really want and benefit
> from standards) and would also make life very difficult for independent
> software vendors. In terms of corporate customers, it would create an
> incredible morass of expenses and inefficiencies. Ultimately, a breakup would
> benefit no one except Microsoft's competitors and those seeking to further
> their legal/political careers. Nevertheless, the bottom line here is that
> history shows a breakup will be beneficial to shareholders. (if it is not for
> some reason, this could precipitate the mother of all class action suits by
> shareholders against the DOJ, which none of the parties concerned want to
> happen)
> One remedy which is somewhat more likely to occur would be the government
> forcing Microsoft to publish its source code to independent software vendors
> in order to facilitate innovation. This does not mean that Microsoft would be
> forced to give away its secrets, but rather incorporate new ideas provided by
> independent software vendors in future upgrades. This remedy will probably
> become irrelevant given the length of the appeals process in an industry that
> is measured in dog years. With the success that Linux has had to date, you
> can be sure that Microsoft not only has Linux on its radar screen, but will
> implement the practice of making their source code available long before it is
> imposed on them by the DOJ.
> The DOJ could also decide to impose temporary patent protection, similar to
> what is done in the pharmaceutical industry. However, given the rapid change
> inherent in the software business, by the time a patent expired, it would most
> likely be irrelevant in the marketplace.
> We continue to believe that the most likely scenario will be a lengthy
> appeals process ultimately decided by the Supreme Court, with Microsoft
> prevailing. Throughout this process, there will be 15-25% corrections in the
> stock price, as nervous Nellie's dump the stock on some recent short term
> negative developments. These should be used as buying opportunities, as
> historically any such correction in the stock price has proved to be. Short
> term, we believe most of the anticipation of Microsoft losing the first round
> is already in the stock price, and see support in the 140 range.
>
> TRADING UPDATE: We continue to favor shorting Cisco puts as our primary
> trading vehicle, and continue to hold short positions in the March 95 and 105
> puts, which we sold for 5 1/4 and 9 1/4 respectively. With the further
> weakness in Cisco shares this past week, we took advantage of implied
> volatility at 53%, and initiated another trade, going short the Cisco July 105
> puts, which we sold for 16 7/8. We are currently holding this cash, waiting
> to put it to work going long more of the Cisco Jan 2001 80, 85, and 90 calls.
>
>
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>
> DISCLAIMER: The information herein has been obtained from sources which are
> believed to be reliable, but there are no guarantees as to its
> accuracy or completeness. Neither the information nor any opinion
> expressed constitutes a solicitation for the purchase or sale of any
> security.
>
> THE HIGH TECH ARENA
> Joe Arena
> Editor
> JRArena@aol.com
>
>
>
>
>
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