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Antitrust case beats down Microsoft shares

The case has taken its toll on Microsoft investors, and it's unclear whether the cloud hanging over the shares will lift anytime soon.

The landmark antitrust case has taken its toll on Microsoft investors, and it's unclear whether the cloud hanging over the software giant's shares will lift anytime soon.

The shares, which have already been pounded this year, could come under increased pressure following a tough remedy proposal from federal and state regulators calling for the split of the software giant, analysts said.

Today's news is just the latest blow for the company, which has watched its market capitalization cut practically in half since December. With the threat of a breakup looming and little guidance to how the new companies would be valued, investors have pushed Microsoft shares down 42 percent in less than four months.

Analysts predicted more bloodshed for the software giant's shares next week, as investors and the analyst community digested the possibility of a split Microsoft.

"I think the stock may trade down on Monday," said Terry O'Brien, an analyst with Branch Cabel, adding that he foresees investors supporting a price of about $60 a share.

Microsoft, which closed at $69.75 prior to today's court developments, gained slightly in after-hours trading to $70.50. Despite the slight rise, analysts note that volume was too light to use as a gauge for investor sentiment.

Analysts predicted that splitting the company will likely drive up costs to run two operations and reduce Microsoft's ability to leverage its operating system to enter new markets.

James Ragan, a senior analyst with Crowell Weedon, said it's too early to predict the value of two separate Microsoft units. "I don't believe there has been a lot of serious analysis by the market in terms of figuring out the value of the company in the event of a breakup," Ragan said.

Analysts are mixed on whether Microsoft will remain a strong company if its operations are split in two.

"I have the mind that?the pieces are not equal to the whole. I think the whole is worth a lot more," said Jonathan Geurkink, an analyst with Ragen MacKenzie.

While Wall Street wrestles with assigning a valuation for the two companies and the case drags on, the stock may remain depressed due to uncertainty, analysts said.

"I think for awhile (it will be depressed), certainly for the next few months," Ragan said. "But, eventually, I think this stock is going to trade more based upon Microsoft's operational outlook, rather than the prospect of a breakup."

Meanwhile, companies that sell the Linux operating system, an open-source competitor to Windows that is slowly gaining market share, got a boost from the news today.

In after-hours trading, Breaking the giant: Special Coverage Red Hat rose to $30.88 from its close of $25.06. Corel jumped from its close of $6.63 to nearly $10. VA Linux Systems moved up from a close of $41.63 to $45. Caldera Systems climbed from $13 to $14, bringing its stock back to its IPO price.

Linux has caught on primarily in the market for low-end servers and has slowly chipped away at the dominance of Microsoft Windows NT and Windows 2000.

News.com's Sandeep Junnarkar and Stephen Shankland contributed to this report.