WASHINGTON – Microsoft shares touched record levels yesterday as investors reacted to the software giant’s better-than-expected earnings.
Microsoft gained 7, or 4.5 percent, to 1625/8 after the company reported a 75 percent rise in quarterly profits. Earlier in the day, the stock hit a record of 1673/4.
Bill Gates wealth now stands at a staggering $83 billion.
Meanwhile, Microsoft’s defense of the government’s antitrust case continued to get off to a rocky start yesterday when its first witness conceded that personal computer makers have no alternative but to bend to the company’s restrictive demands on its Windows contracts.
MIT economist Richard Schmalansee admitted under an intense cross examination that PC makers and Internet services providers must bend to the enormous demands Microsoft imposes on them because right now they have no choice – if they want to include the Windows operating system with their products.
As part of its sweeping antitrust suit, the Justice Department and 19 states allege that Microsoft illegally bullies PC makers to limit distribution of rival products like Netscape Communications Internet browsing software as part of their contracts with Windows.
In a dramatic moment, government lawyer David Boies introduced an e-mail sent to Microsoft from an angry John Romano manager of Hewlett Packard, the nation’s No. 2 computer manufacturer complaining that the restrictions imposed on his company caused “significant and costly problems.”
Schmalansee replied that Romano was “clearly an angry man.”
But Boies pressed ahead and asked whether PC makers have an alternative to Windows.
” In the short run, the answer is no,” Schmalansee replied.
Microsoft insists that its restrictive deals with PC makers are legal and are no different from deals made in other industries.
The company suffered another blow when Boies introduced internal company documents that disputed a key portion of Microsoft’s defense that it won the so-called browser war with Netscape because it made a better product.
Boies introduced a May 1998 internal marketing report in which key Microsoft executives noted the software giant spent $500 million developing its Internet Explorer browser, then lost another $120 million by giving it away for free even though it was “not fundamentally compelling,” or distinctive from Netscape’s product.
The memo appeared to bolster the government’s argument that Microsoft invested such a huge sum in order to squash its rival and protect the industry-dominant Windows operating system that powers 9 out of every 10 personal computers.
It is however a small sum for a company that just posted a whopping 75 percent increase in profits.