Microsoft: Spin-Off City?

WASHINGTON (04/25/2000) - The Justice Department is likely to ask U.S. District Judge Thomas Penfield Jackson to spin off Microsoft Corp.'s popular Office productivity software suite as a means of reviving competition, people familiar with the case said yesterday.

The recommendations also are expected to include limits on Microsoft's business practices during a transition period before the spin-off, they said. News of the possible recommendations, along with weak financial results reported by Microsoft after the market closed last week, sent the company's shares plunging. Microsoft was down $12.31, to $66.63, on volume of more than 157 million shares on Nasdaq today.

The DOJ and the 19 states involved in the case are due to submit their recommendations to Jackson by April 28. Microsoft's response is due by May 10, and oral argument in court is slated for May 24. Microsoft, which has already vowed to appeal Jackson's April 3 ruling that the company violated antitrust law, warned that the rumored breakup would harm consumers and the high-tech industry. "We don't believe there is anything in the trial record or in this case that would deem as radical and extreme a remedy as breaking up Microsoft appropriate," said company spokesman Jim Cullinan. Leading Microsoft critics countered that some form of breakup is the only possible measure to prevent the company from abusing its market position in the future.

"In order to not have a remedy that's a joke, you always had to have a structural component," says Ed Black, president of the Computer & Communications Industry Association. But he declined to comment on the rumored remedy of splitting off Microsoft's applications division. "We're going to have to take a look at the details," Black said. "We don't know enough yet."

Microsoft's revenues from Office, which include Excel, Word and PowerPoint, and other applications exceed the company's take from its operating system business. In the first quarter of 2000, Microsoft reported revenues of $2.3 billion from sales of various versions of Windows, and $2.6 billion from sales of Office and other "productivity applications."

The company's consumer division, including its Internet service, had revenues of $756 million. Microsoft does not disclose profitability of the different segments. News of the breakup plan was reported in Monday's editions of the Wall Street Journal, the Washington Post and USA Today.

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