SEATTLE/ Conservative Monitor -- The U.S. Court of Appeals decision to overturn the breakup of Microsoft would appear to be favorable to Microsoft. Microsoft had more problems than the antitrust charges, the least of which may be the lawsuits that will result of the courts finding that Microsoft has a monopoly in its operating system. Microsoft's stock price is projecting profit growth of 15%+ well into the future. This would be hard to accomplish even without the government's oversight and the threat of lawsuits given the current computer downturn and Microsoft size.

Competitor Lawsuits

The finding that Microsoft violated antitrust laws, but did not violate antitrust laws by packaging its web browser with its monopoly operating system defies logic. It appears the court was unable to separate its animosity towards Judge Jackson and its previous decision regarding Netscape. The fact that Microsoft gave up the practice of writing agreements with computer makers not to sell certain competing products like Netscape Communications browsers is not particularly meaningful since most competitors no longer exist. (Contrary to Microsoft's position, it could just as easily be argued that the sale of Netscape to AOL occurred because of Microsoft's behavior, not because it was any longer a viable competitor and would have been able to survive alone.) That they continue similar practices is evident in their latest operating system, Windows XP. Settlement of lawsuits for past practices will reduce Microsoft's cash hoard but should have little impact on future operations.

Consumer Lawsuits

While lawsuits from competitors may deserve some consideration, there is no merit to consumer lawsuits. Microsoft's monopoly position in its operating systems occurred as much by luck and greed of competitors as any technological breakthrough by Microsoft. Apple Computer's operating system was the major competitor with Microsoft operating system, and it was only with the release of Windows 3.1 that Microsoft's operating system was capable of replacing the Mac operating system with ease of use. (The Apple/Mac operating system was the preferred system by nearly all PC buyers but the Mac priced itself out of the reach of most people.) After the release of Windows 3.1, Microsoft's existing systems (Windows 3.1, Windows 95, etc.) provided competition with upgraded systems and were one reason Microsoft was unable to realize monopoly profits with upgrades to consumers.

As regards new equipment purchases, until recently the price paid for a computer with a preloaded operating system had such a huge gross margin that it was a fight between the computer manufacturer and Microsoft on how the gross margin (no pun intended) was divided. A cheaper price for the operating system would not have reduced the cost of the computer system. Consumers who upgraded had an option, remain with their existing system. Perhaps I am a skeptic, but the most likely outcome here is a settlement that pays off the lawyers and gives consumers a rebate off Microsoft products, which may actually help profits, assuming sales that would not occur otherwise.

Other Problems

With lawsuit distractions, slowing growth in computer sales and given its size, Microsoft will struggle to meet profit expectations. The current Microsoft share price implies a 15% plus growth in profits for the next 7-8 years at a time when it is expected that profits will be flat, at least for the next few quarters. Computer sales are not expected to rebound until 2002 at the earliest plus the negative reaction in the press to the XP operating system will hit the current source of earnings. Microsoft's entry into new markets while offering potential profits in the future also comes with considerable risk. AOL is a considerable competitor with its Internet strategy and Sony and its entry into the game market will be a difficult opponent. It would appear that Microsoft's price may be near the top of its range given the current market conditions, the problems it faces in carrying out its market strategies and the considerable dilution of its stock from stock options, notwithstanding the threat of lawsuits.