Settlement boosts Microsoft shares
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NEW YORK (Nov. 4) - Shares of Microsoft Corp. rose more than 7 percent on
Monday, helping spark a technology sector rally as investors moved in to buy
stocks after the software giant won a settlement of antitrust charges that
avoided tough remedies demanded by nine states.
The stock of Microsoft, which dominates the personal computer software market,
edged slightly lower from morning highs and was trading 6.7 percent higher at
$56.55, but still held on to its post-close gains from Friday, after a federal
judge endorsed the software giant's settlement with the government.
Earlier, Microsoft rose as high as $57.40 in heavy trade on the Nasdaq, where
the stock was among the most active and one of the biggest net gainers.
The news helped boost the technology-laced Nasdaq 56 points, or more than 4
percent, to 1,417.21. The Standard & Poor's Computer Software index rose more
than 3 percent.
Even shares of Microsoft's biggest rivals, including RealNetworks, Sun
Microsystems Inc. and AOL Time Warner rose.
"People are definitely warming up to technology," said Brad Reback, an analyst
with CIBC World Markets.
While Microsoft was contributing to the positive mood in technology shares,
Reback said that investors are betting that last-minute budget spending in the
last three months of the year will bolster revenues, as well.
Brendan Barnicle, an analyst with Pacific Crest Securities, also pointed to
"general market enthusiasm" about the possibility of an additional reduction in
interest rates when the Federal Reserve meets Tuesday.
"I think the key determinant will be whether this rally holds after the rate
cut tomorrow, because typically this market has faded after a rate cut," he
said.
After the market closed Friday, U.S. District Judge Colleen Kollar-Kotelly
approved most of an antitrust settlement between Microsoft and the Department
of Justice, rejecting calls for harsher measures from nine other states.
"We believe the judge's decision to uphold the settlement and disregard the
dissenting states' desire to impose harsher remedies is a major victory for the
company," Merrill Lynch analysts Chris Shilakes said in a research note to
clients. He maintained his "buy" rating on the stock.
Goldman Sachs analyst Rick Sherlund said the judge's decision was a
"significant hurdle where there was some risk of court-ordered changes that
could have been adverse to Microsoft's business model."
Shares in Redmond, Washington-based Microsoft have rallied nearly 27 percent so
far this month, regaining more than half of their slide this year from $67 to
$43.
RULING IS AN "ALL CLEAR"
The non-settling states -- California, Connecticut, Florida, Iowa, Kansas,
Massachusetts, Minnesota, Utah, West Virginia, plus the District of Columbia --
challenged the settlement as too weak to stop Microsoft from abusing its
dominance.
They asked for greater disclosure of Microsoft's code to allow rivals to make
software that works better with Windows, but Kollar-Kotelly rejected nearly all
their demands, saying there was "little, if any, legitimate justification for
these remedies and in most instances these proposals are not supported by any
economic analysis."
Bob Austrian, an analyst with Banc of America Securities, said the ruling
amounted to a virtual "all clear" for Microsoft, noting that growth areas,
including Web services, business software and intelligent devices, were largely
unencumbered by the settlement.
"Critically ... Kollar-Kotelly ruled that these areas constitute 'new
allegations' (pronounced 'irrelevant') beyond the scope of the case or its
remedies," Austrian said.
The settlement will give computer makers greater freedom to feature rival
software on their machines by allowing them to hide some Microsoft icons on the
Windows desktop, and Microsoft is prohibited from retaliating against them.
The proposed settlement would be overseen by a three-person committee and would
expire after five years with the possibility of a two-year extension.
"Despite what some of Microsoft competitors are pushing for, this does reaffirm
the whole concept of intellectual property," said Sanford C. Bernstein analyst
Charles Di Bona.
"In the long run, that's good for technology."
Rtr 15:53 11-04-02
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