How wonderful to be Steve Ballmer, the new chief executive of Microsoft, and to know that you don't have to repeat the mistakes of your brilliant but flawed predecessor, Bill Gates.

Ballmer, above all, has a chance to escape the trap of corporate hubris that enveloped Gates as he battled the Justice Department's antitrust suit. This stopped being just a lawsuit several years ago for Gates; it became personal, and that probably hurt the company.

Ballmer can cut his losses, starting now. He's free to settle the suit and steer Microsoft into the open seas of 21st century competition. But how should he do that? What's the best way for the new CEO to keep what's best about Microsoft, while jettisoning the parts that don't work?

Ballmer's job, in the simplest terms, is to realize value for shareholders. That's every CEO's first responsibility, but it's especially important now, as Ballmer assesses Justice's reported demand that Microsoft be broken up as the price for settling the case. He dismissed the question at a press conference Thursday as "absolutely reckless and irresponsible," but he should give the underlying issue careful thought: Will shareholders be better off if the company stays intact, or if it's broken into pieces?

The shareholder argument for a breakup is simple: Microsoft has become so big and bureaucratic that it has lost the nimbleness and flexibility--and even some of the aggressiveness--for which it became famous. Some industry analysts are convinced that Microsoft investors holding shares of these smaller software tigers would do better in the long run than if they cling to Gates's monolith.

A cogent case that shareholders would benefit from a breakup was prepared last month by International Data Corp., a respected consulting firm. The IDC report, written by Anthony C. Picardi and Dan Kusnetzky, argued that Microsoft should spin off five new companies, including: an operating systems company, a software tools company, an applications company, a hardware company and an Internet content company that would compete with the likes of AOL Time Warner.

"Our recommendation to Microsoft is to take the bold step to settle [the Department of Justice suit] immediately and voluntarily spin-off a set of technologically coherent companies whose mission is to produce best-of-breed software across all operating environments," wrote the authors of the IDC study. "In this way, Microsoft would adroitly maneuver out of its current PR disaster and away from its PC-centricity."

The logic of such a breakup isn't that it would make nice with antitrust lawyers but that it would make money. That's because Microsoft, for all its past success, may not be well positioned now to compete for software revenues in the post-PC world of network computing and hand-held devices.

Microsoft truly has new worlds to conquer. According to IDC data, Microsoft now has an 11.3 percent share, or about $17.4 billion, of the total $154.3 billion worldwide software market. It has a 16.3 percent share of the operating system market and a 13.8 percent share of applications. These numbers, while impressive, leave room for future growth. And IDC's analysts predict that Microsoft would do better if it wasn't limited to selling an integrated Windows solution--and could instead go after more customers who use Unix, Linux and other platforms.

Other analysts who've looked carefully at the breakup value of Microsoft come to a similar conclusion--that the company may be worth more in pieces. Prudential Securities analyst Douglas J. Crook, for example, issued a report Friday putting the breakup value of Microsoft at $150 a share--more than 30 percent higher than Friday's closing price of about $112.

A similar judgment was reached a month ago by Michael Kwatinetz of Credit Suisse First Boston. In an analysis cited by Fortune magazine, he pegged Microsoft's breakup value at 20 percent above its market value.

The economic argument against a breakup is straightforward, too: It's that Microsoft's size and market power allows it to build products, such as the Windows operating system or Word word-processing software, that become the industry standard. Only a giant, it could be argued, will be able to make all the pieces of the exploding new world of technology--what Gates and Ballmer call "the programmable Internet"--work together.

There may also be a stock-market benefit from giantism. Ballmer told a friend recently that he thinks Microsoft shares command a premium from having all the different parts of the company glued together--and that, for this reason, shareholders might suffer from a breakup.

But Microsoft insiders grumble privately that the company has become too big and bureaucratized to compete effectively, and that a breakup would be the best way to reengage the energies of its amazingly talented work force.

Obviously, no new CEO relishes the thought of dismembering the company his predecessor worked so hard to build. But other great companies, starting with AT&T, have gone through a similar breakup process and seen it produce a cascade of new creativity and wealth.

If Ballmer wants to hold onto all the pieces, he needs to find another way to settle the antitrust case--and to reinvigorate a techno-giant that needs the challenge of a fresh new start.

Whatever Ballmer decides, he shouldn't be a prisoner of the past. With his accession as CEO, Microsoft can turn a page and start a new chapter. The right rule for the new guy is the simplest one: How do I create the most value for shareholders?