WASHINGTON (04/24/2000) - Shares in Microsoft Corp. dropped more than 15 percent today in the wake of rumors of a possible company break-up, concerns about the software maker's earnings potential, and a series of downgrades from prominent investment banks.
Microsoft's stock was selling for US$66.63 at the close of regular trading, down from a 52-week high of $119.94 and its lowest level since December 1998.
Proposed remedies to end Microsoft's monopoly in the operating systems market are expected to be announced this week -- possibly as early as tomorrow -- and reports say the U.S. government may push for a breakup of the company.
Meanwhile, Microsoft executives were more skeptical than usual about the company's financial prospects in a conference call to discuss quarterly earnings last week. And while the company's profit beat Wall Street estimates by two pennies, analysts noted that it did so only with strong gains from Microsoft's investment portfolio.
But concerns about the company today seemed to stretch beyond the possible antitrust remedies and Microsoft's near-term financial prospects.
"There is a increasing risk that Microsoft might atrophy on the PC platform as IBM did on the mainframe platform, while robust growth shifts to hand-held and wireless devices," Rick Sherlund, an analyst with Goldman Sachs Group, wrote in a note today for investors.
Gates in June is expected to outline Microsoft's Next Generation Windows Services initiative, which includes software and services geared especially for Internet computing. But those products aren't due for three to five years, implying "a lengthy transition for the company," Sherlund wrote.
Goldman Sachs dropped Microsoft from its "recommended" list to a "market outperform," while Thomas Weisel Partners LLC downgraded the company from a "buy " to a "market perform." Meanwhile, SG Cowen downgraded Microsoft from a "strong buy" to a "buy" today, and also reduced its revenue estimate for the company in the June quarter.
Microsoft's woes sent the tech-heavy Nasdaq into a slide, and most of the major PC manufacturers, including Compaq Computer Corp., Dell Computer Corp., Gateway 2000 Inc. and Hewlett-Packard Co., saw their share value drop by between 3 and 5 percentage points. The Nasdaq composite index dipped 4.3 percent.
The U.S. Department of Justice (DOJ) and 19 U.S. states have until Friday to announce how they propose to punish Microsoft under a schedule set for the "remedy phase" of the antitrust case set by U.S. District Judge Thomas Penfield Jackson, but details of the proposal surfaced today as a result of leaks over the weekend to various media by unidentified sources.
Under the proposal, the Office package of business productivity software, including Word and Excel, would be spun off into a separate business, and Microsoft would be subject to restrictions on its conduct until the divestiture, a story in the Wall Street Journal said.
Microsoft also would be forced to split off the Windows operating system business from the rest of the company, unidentified people who are familiar with the proposal told the Wall Street Journal and the Washington Post. The operating system company would be permitted to include browser software, but the Office business would also have rights to Microsoft's Internet Explorer Web browser, the reports said.
Microsoft, in Redmond, Washington, can be reached at +1-425-882-8080 or http://www.microsoft.com/. The DOJ can be reached at http://www.usdoj.gov/.