International Data Corp. (IDC) argued in a recently released report that Microsoft Corp. and the information-technology industry as a whole would be better off if the company were broken up.
Microsoft offspring, divided along operating-system, application, tools and database lines, would then be free to offer products for other operating systems "and get away from the stranglehold of the [Windows] NT-only platform," said IDC analyst Tony Picardi, one of the authors of the report, which was prepared for clients of Framingham, Massachusetts-based IDC.
Microsoft's continued goal of selling comprehensive, Windows-specific packages to customers is "unrealistic," said Picardi. Offering Microsoft-only solutions "is the same thing as saying 'We're not going to trade with you unless you speak English.'"Microsoft is fighting off the threat of a breakup in the antitrust case filed by 19 states and the U.S. Department of Justice. Government attorneys in the case have long favored structural relief -- a remedy that doesn't require ongoing regulatory oversight. That has generally either meant a breakup or selling the source code for Windows.
One source close to the case said that while no agreement has been reached on just what to do, a consensus is emerging.
But Michael Geran, an analyst at the Pershing division of Donaldson, Lufkin & Jenrette Inc. in Jersey City, New Jersey, said a breakup of Microsoft might not necessarily be the better deal for investors.
In Microsoft's case, the premium commanded by the stock "in part reflects three things: the perceived financial strength and synergy between the pieces; the balance and forecastability of the earnings, which are important to institutional investors; and liquidity concerns," said Geran. "While people may argue that the parts are worth more than the whole, sometimes the marketplace doesn't work that way."
"A breakup remains a highly unlikely scenario," argued Hillard Sterling, an attorney at Gordon & Glickson PC in Chicago.
"Microsoft would never agree to a breakup in a settlement, and a breakup probably wouldn't survive the appellate process," said Sterling. "A breakup is an overblown reaction to the government's relatively narrow claims, [and] is totally unnecessary to enhance browser competition."
Microsoft spokesman Jim Cullinan said Redmond hadn't seen the IDC report, but Microsoft officials don't "believe that there's anything in this lawsuit that would result or dictate into such a harmful and severe resolution, like breaking up a successful company."
"I'm not sure what the rationale is behind this report," said Cullinan, "but this suggestion of breaking up the company is just not good for the company, the industry or consumers."