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Microsoft Stock Is Unfazed by News of Further Evidence of Antitrust Violations

Posted on: Thursday, 7 August 2003, 06:00 CDT

Aug. 7--When regulators announce they intend to punish a company, it tends to hurt the company's stock. But Microsoft shares were barely affected yesterday after the European Commission said it had additional evidence that the Redmond company has violated antitrust laws.

The stock rose 35 cents during midday trading, but closed down a penny, or 0.04 percent, to $25.65. The Nasdaq market, where Microsoft trades, was down 1.24 percent overall.

Several analysts urged clients to buy more shares if the price fell on the news. They reasoned that Microsoft has plenty of cash to pay any fines, and it may boost its dividend once the case is resolved. In response to calls for a bigger dividend, the company has said it's hanging on to its cash until the European case and a lawsuit with Sun Microsystems are resolved.

"We see nothing here that would be disruptive to Microsoft's business and view this as a positive for the stock," Goldman Sachs analyst Rick Sherlund said in a note to clients.

Several analysts downplayed the financial penalties Microsoft faces: a maximum fine of 10 percent of annual sales, or $3.2 billion. Heather Bellini at UBS said it's unlikely to pay that much since the largest commission fine to date translates to a $640 million penalty for Microsoft.

"Given that the company has $49 billion in cash, we would use any weakness in the shares as a buying opportunity," she wrote. "As well, we believe that any step toward bringing closure to the EU antitrust case should bring Microsoft that much closer toward announcing plans for its large cash balance."

Alan Davis at McAdams Wright Ragen in Seattle said the commission's findings could have a negative effect on Microsoft in the short term.

"Although not a positive for Microsoft, the findings and remedies announced today are not unexpected and do not seem debilitating," he wrote in a note to clients. "The mere fact that the case is coming to a close offsets many of the near-term negatives. A final decision would lift another cloud from the skies of Redmond."

Davis said the news could have a "modest positive" effect on Seattle-based RealNetworks, since the commission may require Microsoft to bundle competing media players such as Real's with the Windows operating system or sell versions of Windows with the Microsoft media player removed.

But the day was harder on Real's stock, which closed down 15 cents, or 2.87 percent, at $5.148.

Microsoft spokesman Jim Desler couldn't explain his company's stock jump in midday trading. "Go figure," he said.

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(c) 2003, The Seattle Times. Distributed by Knight Ridder/Tribune Business News.

MSFT, RNWK, SUNW,

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