Microsoft shares shed more value after ruling

Amid a general technology sell-off, the software giant's competitors, which earlier got a small boost from the news, returned most of their gains as the broader markets suffered a severe midday drop, only to recover later in the day.

Microsoft stock fell $2.31 or about 2.5 percent, to close at $88.56 on volume of more than 89 million shares. Yesterday, shares fell more than 15 percent as investors anticipated the worst before U.S. District Judge Thomas Penfield Jackson issued his decision against the firm. At the time, the drop sliced more than $70 billion from Microsoft's market capitalization.

In after-hours trading yesterday, however, shares rose as high as $93 before settling, as investors saw the early drop as a good buying opportunity.

A federal judge concluded yesterday that Microsoft had violated antitrust laws by leveraging its monopoly position in operating systems to capture the market for Web browsers.

For the second day, investors retreated from technology stocks, sending the Nasdaq composite index spiraling lower--at one time plunging as much as 574.57 points . The Dow Jones industrial average, which gained as much as 196 points early, also fell before recovering late in the day.

"I don't think the sell-off has to do with Microsoft's (legal troubles)--Microsoft is serving more as a catalyst in starting this sell-off," said Taai Izushima, a trader at Daiwa Securities America. "There's still room on the downside for technology stocks."

Both indexes managed to claw their ways back to post only modest declines by the time markets closed at 1 p.m. PST. The Nasdaq fell 74.79, or 1.77 percent, to 4,148.89, while the Dow shed 57.09, or half a percent, to 11,164.84.

Yesterday, the blue chip index soared more than 300 points, when investors fled from technology stocks as Microsoft led the market lower. Meanwhile, the Nasdaq fell 7.6 percent, representing its biggest one-day point drop ever.

Despite Microsoft's recent volatility, most analysts still see great strength in the software maker for long-term investors, even with the prospect that the appeals process in the antitrust case could continue to weigh on the firm's future.

"While the trial will continue to overhang the stock, we believe the good news lining up for Microsoft--the most important of which is strong business fundamentals--could begin to drive the stock again," PaineWebber analyst Don Young wrote in a report today. Young repeated his "buy" rating for the stock.

Investment bank Credit Suisse First Boston also reiterated Microsoft as a "strong buy" this morning.

The technology stocks--many considered competitors to Microsoft--returned the small gains they racked up this morning on the prospect that a ruling in the government's favor will hasten remedies that could chip away the software maker's widespread dominance in the operating system and software market.

Firms that tout the open-source Linux operating system traded higher this morning but turned south midday. Linux is seen as a viable competitor to Microsoft's Windows dominance, especially in the server market.

Linux seller Red Hat shed about 69 cents, or 1.63 percent, to $41.44. VA Linux gained 69 cents, or 1.1 percent, to $63.

Other technology companies that might have had a better showing this morning in the wake of the ruling dragged as investors across the board shed technology holdings.

America Online, which has high hopes to replace the desktop with Web-based computing, dipped $3.63, or 5.45 percent, to $62.88.

"The fact that Microsoft got a pounding because of the Justice Department is really more of a moral victory for AOL," said Youssef Squali, an analyst at ING Barrings. "The browser market is not really a moneymaking platform, but (Microsoft and AOL) eventually would try to sell you other applications and services."

Oracle, the second largest software maker and a perennial Microsoft critic, slipped 94 cents, or 1.22 percent, to $75.94.

Also, Sun Microsystems, a strong proponent of network computing, gained 19 cents, or nearly a quarter percent, to $90.