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2HRS2GO: Microsoft&#039s ills don&#039t necessarily mean benefits for rivals

We're seeing a rare moment of clarity for the stock market.

Today's traders know the difference between bellwether news and anomalies, which explains why the Judge Thomas Penfield Jackson's finding of fact regarding Microsoft (Nasdaq: MSFT) isn't dragging the rest of the technology sector down. Tech stocks are generally rising today while Microsoft takes the expected dip; that itself ought to tell you that Microsoft might not be as dominant as critics claim.

Astute folks who follow technology closely already know that. Anyone who works on Web infrastructure can tell you that companies like Sun Microsystems (Nasdaq: SUNW), Oracle (Nasdaq: ORCL), and Novell (Nasdaq: NOVL) -- along with non-proprietary products such as Apache and Linux -- have done well in the face of the Redmond Raiders.

"Trial applies to PC-centric world of the ྖs," Merrill Lynch analyst Chris Shilakes writes in a research note released this morning. "We believe Microsoft faces much stiffer competition in today's Internet-centric world."

Notwithstanding the fact that we're still in the ྖs, and most of you are reading this on a Wintel PC, the Merrill Lynch analyst's point holds up: Microsoft's problems don't mean problems for the tech sector as a whole. Even if Judge Jackson decides to play Solomon and carve Bill Gates' baby into pieces, computer makers can adjust easily enough to new suppliers, and software developers will keep writing for whatever platforms exist. The packages being sold may change, but the sellers won't go away.

But there's a flip side being ignored today by momentum traders.



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While the technology sector is generally rising this afternoon, some of perceived Microsoft rivals are blazing higher: shares of Be Inc. (Nasdaq: BEOS) were up 85 percent in early afternoon trading; Red Hat (Nasdaq: RHAT) had picked up more than 16 points, or 20 percent; the Sun also rose, to the tune of almost 5 percent; Corel (Nasdaq: CORL) gained more than 10 percent.

Without going into the technical merits of competing operating systems and applications, let's just say that these steep increases have no basis in investing reality. Fundamentals and expectations for these companies (with the obvious exception of Sun) are as laughable as they were last week, and nothing that happens with the Microsoft trial will change that.

Just as Microsoft's breakup won't present any huge problems for the tech industry, it won't produce massive benefits for its competitors. Would Sun suddenly sell more servers if Microsoft is divided? Would corporations suddenly indulge in a massive shift to Corel's suites? Would everyone suddenly run to Linux if Windows no longer came from the same company as Office 2000?

No. No. And no.

The crux of the antitrust case has surrounded Microsoft's use of its operating system monopoly to seize other markets. But as far as the operating system itself, not even the Department of Justice claims that Microsoft gained its massive OS market share illegally. Government prosecutors "merely" accuse Microsoft of using that OS dominance to crush competing applications technologies.

So any possible remedy concocted by the U.S. judicial system -- assuming Microsoft doesn't settle or win on appeal, both of which are reasonable possibilities -- won't boost Red Hat or Be, because they're OS vendors, not creators of Windows applications. It won't change the reasoning (or lack thereof, depending on your viewpoint) used by companies that choose to go with Windows NT servers instead of Solaris ones.

Whether Windows is bundled with applications or not, whether Microsoft is forced to open up APIs or not, the OS will still be there. The products -- Windows 9X, NT, etc. -- won't go away, nor will their R&D. And competing technologies such as Linux won't suddenly make quantum leaps in quality because of Judge Jackson; as this sentence is being typed, Bloomberg TV shows an analyst trying to make the case that Linux will get a boost from this antitrust case, yet even he notes that the OS has a long way to go before matching other operating systems in certain performance categories.

Ultimately, this case can only hurt Microsoft, not create new opportunities for rivals, except maybe Corel. Besides, Microsoft's rivals on the Internet -- the field that matters most to the future -- are already thriving against Gates & Co. Sun or Oracle (each of which already dominates its target Internet markets) won't see dramatically accelerated growth rates if Microsoft is broken up or forced to exist beneath restrictive oversight.

Most tech investors are aware of those things, so don't be surprised if today's massive gains for Microsoft's rivals start to subside soon; if you haven't taken advantage of the short burst yet, you'd do well to stay away at this point.

Other issues:

  • Lucent Technologies
  • (NYSE: LU) Shares of the telecom and network equipment maker are up today following an upgrade from Lehman Bros. analyst Steven Levy, who raised the stock to "buy" from a "neutral" rating. Levy set a price target of $90 on Lucent, with estimated 1999 earnings per share of $1.23, and 2000 earnings of $1.58 per share, on revenue of $39.8 billion and $47.1 billion respectively. 22GO>

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