Microsoft shares up after DOJ settlement
The partial settlement was the news investors had been waiting for since the DOJ began investigating antitrust complaints against the software giant in September. While representatives from both sides are ironing out the details of the proposed settlement, analysts said the deal is simply good business.
"It's a smart business move to settle with the DOJ and move on," said George Koo, an analyst at Burnham Securities. "Microsoft couldn't afford to delay its Windows 98 products, especially since it derives about $4 billion in revenue from OEMs, which represents about one-third of their revenue base." On Wednesday, Microsoft beat analysts' expectations in its second quarter, posting a profit of $1.13 billion, or 85 cents per share, on sales of about $3.6 billion. First Call consensus expected Microsoft to return a profit of 82 cents per share.
But Microsoft executives were quick to point out declining economic conditions in Asia would clip earnings in subsequent quarters. Chief Financial Officer Greg Maffei said Wednesday the company's revenues and earnings would be sequentially flat over the next several quarters, with any upside limited by the troubled Asian economy.
"I think [Microsoft] is being a bit conservative, but it's believable," said Bill Gorman, an analyst at PNC Institutional Investor Services. "About 13 percent of their finished-goods business comes from Asia, so you know it's going to have some impact. They said it could cost them about $300 million in the next two quarters."
Things got even more interesting Thursday when Netscape Communications Corp. (NSCP) confirmed it will give away its client software for free through its Web site. Netscape shares edged up $0.63 to $18.50 in midday trading.
Netscape has lost 15 percent of the Internet browser market, holding 58 percent, since Microsoft Corp. began giving its browser away for free, according to Dataquest.
"I don't think that makes too much of a difference," Koo said. "That was something that everyone knew would happen. Microsoft's biggest concern is getting Windows 98 out on the market and putting its problems with government behind them."
Microsoft executives originally said the new operating system software would be shipping toward the end of March. Analysts said the ongoing battle with the DOJ placed the shipping date of Windows 98 indefinitely on hold.
"They need Windows 98 in the marketplace to offset the shortfall they'll see in Asia," Koo said. "Plus, you'll notice that their general administrative expenses were up about $20 million in the second quarter. That's primarily going to lawyers. Forget the $1-million-a-day fine. They can't afford to keep paying lawyers."