A top executive at Microsoft Corp. called Friday's ruling that the software giant is a monopoly the "third inning of an nine-inning game."
The market signaled its agreement today, selling off the stock in the morning but then just as quickly turning around and snapping it up, proving that Microsoft is not only one of the country's most popular stocks but also possibly its most resilient.
Microsoft shares, which previously have been virtually impervious to the possible implications of the government antitrust case brought 18 months ago, today plunged as much as 7.9 percent--their biggest decline since August 1998.
But they closed at 89-11/16, down only 1 7/8 for the day on an extraordinary volume of 117.2 million shares.
Confronted by a court decision that experts agree could not have been any worse for Bill Gates's empire, and by comments Sunday from the chief of the Justice Department's antitrust division that a breakup of the company was among the possible remedies, Microsoft stock is still up about 29 percent for the year.
U.S. District Judge Thomas Penfield Jackson, in his "finding of facts" Friday, said Microsft "stifled innovation" by abusing its "monopoly" over personal-computer operating systems to bar competition. Jackson's decision on what to do about the company's abuses is still months away.
"I was surprised about the ruling," said Alan Day, a money manager at Stratevest Group, a Microsoft shareholder in Burlington, Vt. "But I was not surprised at the way the market responded."
"What we need to figure out now is how the judicial directive will be executed," said Fredric Russell, who manages $75 million for Fredric E. Russell Investment Management Co. in Tulsa. "More uncertain is the marketing and investment strategy of Microsoft itself."
A Merrill Lynch report attributed the decline to "shock value" but said it doubted the ruling would have an impact on Microsoft revenue. "Our concerns are not on what Microsoft does on the desktop," it said, "but how successfully the company adapts to the increasingly server-centric, Internet-centric world."
It also noted that any penalties against Microsoft could come as late as 2001 or even 2002 as findings of fact and findings of law will likely be appealed, potentially to the Supreme Court.
In fact, some investors believe that Microsoft could be worth more broken up, thanks to a process that investment bankers call "unlocking hidden value," based on the theory that the sum of the parts is worth more than the whole. After the breakup of AT&T in 1984, for example, investors wound up with stock in seven regional "baby Bell" companies plus the long-distance carrier and telecommunications-equipment maker. In the 15 years since then, the cumulative value of the holdings of AT&T shareholders has increased 1,500 percent.
One part of Microsoft, as investment bankers envision it, would include the Internet business, which many believe has been left out of the Internet stock boom because it is bundled into the corporation as a whole.
Another part would include the Windows operating system, and a third would control Microsoft's office software.
"There is definitely potential breakup value," Day said.
That is part of the reason none of the 15 portfolio managers overseeing Stratevest's $4 billion in assets sold Microsoft. "I look at this company in total and say I'm not ready to give up the ship yet," he said.
A breakup, some investors believe, could also help smaller competitors. The stock of Red Hat, which sells rival operating system Linux, vaulted 18, to 104-1/16. America Online, which bought Netscape Communications for $10 billion in stock, rose 3-9/16, to 149 1/8.
Much of the judge's findings revolved around the tactics used by Microscoft against Netscape's Internet browser.
"What we saw today is that the market recognizes that this industry is incredibly competitive and incredibly innovative," said Microsoft spokesman Mark Murray. "Microsoft has to compete and deliver, just like any other company."
Many technology stocks soared today, pushing the Nasdaq composite index up 41.68 points, or 1.3 percent, to a record 3143.97.
The Standard & Poor's 500-stock index rose 6.78, or 0.5 percent, to 1377.01, led by Lucent Technologies. The Dow Jones industrial average fell in the morning and then climbed, closing up 14.37, or 0.1 percent, at 10,718.85.
Just a week ago, the Dow Jones added Microsoft to the elite list of 30 blue-chip stocks in the index. "We were certainly aware of the state of affairs of the antitrust case when we made this choice," said John Prestbo, the editor who runs the index.
But, like a good investor, Dow Jones is looking beyond tomorrow. "We're inclined to take a long-term view when picking stocks for the average, even regarding lawsuits," he said. "The shoe that fell on Friday was just the start of communication. There's a long road ahead, and it remains to be seen whether Microsoft as a company has changed as a result of this or not. For the purposes of the average, Microsoft continued to represent a very important sector."