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Microsoft hammered on antitrust worries

Investors issued their own opinion against Microsoft Corp. (Nasdaq: MSFT) Monday as shares fell 15 percent ahead of what is expected to be a harsh antitrust ruling.

Microsoft closed down 15 3/8, to 90 7/8.

Microsoft sold off in advance of District Court Judge Thomas Penfield Jackson's ruling. Jackson will release his ruling at 5 p.m. EDT. Jackson is expected to issue his findings of law in the case -- his ruling on whether Microsoft actually violated antitrust law in leveraging its monopoly. Settlement talks between the government and Microsoft broke down over the weekend.

Although the ruling could pressure Microsoft in upcoming days, analysts were generally bullish on the company's long-term prospects. In fact, a few analysts reiterated "strong buy" ratings Monday.

Jackson's ruling won't be pretty. And Microsoft shares may also get smacked around even more this week. In a few months, however, Microsoft will be growing its market capitalization again, analysts said.

Analysts shrug off latest developments

Wall Street analysts reiterated "strong buy" ratings Monday. Many analysts are telling investors that Microsoft shares are trading at a discount and cite Windows 2000 sales as the key driver for growth. Wall Street is likely to temporarily forget the antitrust trial once Microsoft reports its third quarter earnings. On April 20 after market close, Microsoft is expected to report earnings of 41 cents a share, according to First Call Corp.

"This will be a one day thing," said Andrew Brousseau, an analyst with SG Cowen Securities. "This case just goes on and on."

Brosseau, who reiterated his "strong buy" rating on Monday, said fears about the antitrust battle will hang over shares, but investors will soon focus on the fundamentals and a strong Windows 2000 sales cycle. The third quarter will show some Windows 2000 sales, but the June and September quarters are expected to deliver strong growth.

"It's so hard to speculate what is going on with the potential remedies that I just focus on the fundamentals," said Brousseau, who has a $140 price target on the stock.

Andrew Roskill, an analyst with Warburg Dillion Read, agreed. He said Microsoft shares will have a rough week and give back most of the recent gains. Microsoft has surged as investors hoped for a settlement between the government and Microsoft.

Summer rally?

Roskill said the short term outlook for Microsoft shares is dicey. Investors will react to Jackson's ruling, Microsoft's reply and then Jackson's final ruling in two to three months.

But Microsoft will immediately appeal whatever Jackson rules. "By then the case will be even more moot than it is now," said Roskill.

Roskill reckons that Microsoft shares will rebound once the appeals process starts. "They have better prospects in the appellate court," said Roskill. "Microsoft can appeal to the Supreme Court."

The appeal process will boost Microsoft shares because investors will quickly realize that the software giant stands a better chance to win. The appeals process is also likely to coincide with the strong June and September quarters. Toss in the fact that analysts will reiterate that Microsoft is a bargain relative to its peers and you could have a rally in the summer and fall.

Watch the competition

Unlike the last time Jackson issued a ruling, Microsoft competitors didn't gain on the software giant's woes.

Oracle (Nasdaq: ORCL), Sun Microsystems (Nasdaq: SUNW), America Online (Nasdaq: AOL), Red Hat (Nasdaq: RHAT), Novell (Nasdaq: NOVL), Corel (Nasdaq: CORL) and even Be Inc. (Nasdaq: BEOS) were sluggish amid a broad tech sell off. Corel and Be closed Monday with slight gains.