Microsoft was hit with a double whammy yesterday.
First, its stock plummeted as soon as the markets opened. The warning of weak future earnings had been pent up since Thursday when Wall Street shut up shop for Easter.
Then rumors intensified that the government’s antitrust lawyers will ask to have the company broken up.
That 1-2 punch caused Microsoft shares to drop $12.31 to $66.62. The 15.6-percent fall in Microsoft’s share price dragged the Nasdaq down 161.40 points, 4.4 percent, to 3,482.64, for the composite’s 10th-worst point loss ever.
Lawyers close to the antitrust case said the government is pushing ahead in seeking a “divestiture” remedy — breaking it into independent chunks.
The most likely proposal would see Microsoft split into a Windows company and another made up of everything else. The second part may be further broken into Applications (such as Office) and Microsoft’s Internet concerns including the browser.
Programs such as Office would be required to be written for Macintosh and Linux as well as Windows.
Alternative remedies were said to be too complicated to consider. The Justice Department and 19 states that successfully sued Microsoft for antitrust violations are trying to come up with a solution that is not outpaced by changing technology before it has time to bite.
Lawyers for the government have to make their minds up by Friday.
Insiders said Microsoft’s pugnacious CEO Steve Ballmer may have brought this bad news on himself. In speeches in Washington last week Ballmer refused to give any quarter. The company stuck to its guns again yesterday.
Microsoft spokesman Jim Cullinan said yesterday that nothing it did justified “such an extreme and radical” remedy as a breakup of the company. “This would be bad for Microsoft, consumers and the entire industry.”
Ken Wasch of the largely anti-Microsoft Software and Information Industry Group said, “There’s been a huge turnaround in the government’s thinking in the last 10 days. They realized the remedies they were proposing were too regulatory and ultimately unenforceable. Steve Ballmer’s defensive tone only strengthened their hand.”
While the market was busy biting the hand that fed it, lawyers close to the case believe that a breakup could send Microsoft stock skyward and make the parts worth more than the whole.
On the other hand, International Data Corp. analyst Al Grillen thinks talk of a breakup will continue to scare investors away.
“I think the government’s tactic is to put pressure on the board,” Grillen said. “They see the stock dropping and they have to do something to protect their shareholders’ wealth.”
Microsoft shares are some of the most widely held in the country.
Microsoft insists it will appeal the ruling against it and the case is likely to go to the Supreme Court.
Bill Gates’ personal wealth dropped $7.7 billion.
Meanwhile, his archenemy, Oracle boss Larry Ellison, is within an inch of overtaking Gates as the richest man in tech. Ellison, whose Oracle stock climbed 2 percent yesterday, now holds $48 billion in stock in his own company, while Gates has $49.4 billion in his.