Larry Dignan: Why Microsoft ruling won't worry Wall Street

The ruling isn't any surprise, and could be forgotten on Wall Street by the end of the week

Once you digest the government's 207-page ruling against Microsoft, the hundreds of press reports about company's latest courtroom setback and the commentary from dozens of pundits you come to a quick conclusion -- none of what the government said is surprising.

And that's why the damage to Microsoft shares will be minimal, a dip of roughly 5 to 10 percent judging from trading in Europe. Microsoft will take an early hit and bring the Nasdaq and Dow Jones industrial average with it, but by the end of the week -- and perhaps by the end of the day -- this antitrust flap could be forgotten on Wall Street.

Wall Street hates surprises and luckily for Microsoft shareholders there were none in the government's finding of facts in the Microsoft antitrust case. US District Judge Thomas Penfield Jackson's findings of facts against Microsoft were harsh, but predictable -- he sided with the government and found that the software giant was a monopoly. Anyone paying attention to the trial knew which way Jackson was headed. (See Microsoft-DOJ Special Report .)

Yes, the tone was decidedly anti-Microsoft. Yes, the government ruled that Microsoft abused its power. And yes, Microsoft probably hurt consumers by stifling innovation.

Microsoft was routed, but don't expect institutional investors and mutual funds to dump Microsoft shares. Retail investors aren't likely to budge either judging from a lot of posts in Talkback as the news broke. In aftermarket trading Friday, Microsoft shares fell about 4 points. The reaction would have been worse if Microsoft said it would miss this quarter's estimates.

Most of the damage has been priced in. The market knew this antitrust suit was hanging over Microsoft and shares still doubled in the last year. Given the market now knows what it's dealing with, Microsoft shares could actually gain after today.

Here are a few good reasons why Wall Street will hit the snooze bar on the latest ruling:

1. The game hasn't even started yet. If the Microsoft trial were an American football game, we'd still be watching the pregame show. Judge Jackson's findings of fact are the first step in what will be a three-part decision. Friday's ruling set the parameters and now both sides have 30 days to propose "findings of law". Then the judge rules and determines if Microsoft violated antitrust laws (guess which way that'll go). Then both sides can appeal and drag the process on for years and wind up in the Supreme Court.

And don't forget that Microsoft and the government could settle. The two sides are going to meet next week according to various reports.

2. No remedies were proposed. Investors know Microsoft is a monopolist cash cow -- that's why they own shares. Investors might have an adverse reaction if Microsoft were broken up or put out of commission, but that's a long shot. But even a breakup may not phase Wall Street. Investors that held on to shares of Ma Bell all these years after its break up would have shares of AT&T, a bunch of Baby Bells and Lucent Technologies. Not a bad portfolio at all. Are a bunch of Mini Microsofts so bad?

If financial penalties were levied, Microsoft would be far from bankrupt. It's not like it doesn't have the cash.

3. The likely outcome is workable. The likely ruling would be a consent decree against Microsoft telling it what it could and couldn't do. The government levied a ruling against IBM way back when to open the mainframe market. Guess what? Big Blue is still the mainframe king and developed its business around the decree. Technology changes and consent decrees get outdated quickly. Microsoft can change the game.

4. The damage has been done. Microsoft won't admit it, but it has been playing differently these days. The company could have made MSN free or bundled in access with Windows. But it didn't because of the antitrust case. When Microsoft was expected to cut the fees for MSN, it raised prices and let America Online off the hook. PC makers are also developing Net appliances and even playing around with alternate operating system's such Linux. The landscape is dramatically different and Sun Microsystems, Red Hat and others have a window into the marketplace.

5. Wall Street loves Microsoft. This antitrust trial would be a lot harder to digest if Microsoft were a company prone to financial fumbles. The software giant beats its estimates every quarter and manages Wall Street better than any company on the planet. Wall Street is about money not value judgements. As long as Microsoft keeps bringing home the bucks, Wall Street will cut it a lot of antitrust slack.

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