Branded a monopoly by a federal judge after the market's closed Friday, Microsoft posted a sharp drop in its share price Monday morning. But the decline tempered as analysts argued that Microsoft had already seen the worst.
Amid concerns that the US Justice Department may seek to break up the company, Microsoft shares fell $US3.625, or 4 per cent, to $87.9375 in early trading, after dropping as much as 8.8 per cent earlier - the biggest decline in more than a year. Trading was exceptionally heavy, with nearly 73 million shares trading hands.
Before US District Judge Thomas Penfield Jackson issued his finding of fact late Friday US time, Microsoft shares had closed on the Nasdaq Stock Market at $91.5625, but they fell about 3 per cent to below $89 in after-hours trading.
Repercussions are expected across the market Monday. Last week, Microsoft became a component of the Dow Jones Industrial Average, and the company is a big player on the Nasdaq Stock Market. Both have risen recently, but analysts said that the Microsoft ruling could dampen the rally, at least temporarily.
Judge Jackson found Friday that Microsoft has "stifled innovation" and has used its power as a monopoly to thwart competition. Assistant Attorney General Joel Klein said Sunday that the government is considering several remedies, including a breakup of Microsoft.
Despite the reaction Monday morning, some analysts say a ruling in the government's favor was expected and the share price had already taken it into consideration. Moreover, Judge Jackson has yet to issue a final ruling. He must still decide whether Microsoft violated the Antitrust Act by wielding its monopoly power illegally. If he decides it did, he must issue remedies or punishments. That process is expected to take several months; an appeal by Microsoft could delay any proposed punishment for several years.
With no debt, billions in the bank, strong profits and a record for growth, Microsoft remains a Wall Street favorite. It is viewed as a company with strong fundamentals, and investors may use the drop in stock price as an opportunity to buy more shares.
But the news sent the share price of competing software makers, such as Red Hat and Sun Microsystems, climbing Monday. Red Hat, which is a leading seller of the Linux operating system, jumped nearly 20 per cent in early trading.