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THE DAY AHEAD: Wall Street might like several Microsofts to choose from

Lost amid Thursday's widespread technology stock selloff was a little ripple of panic from Microsoft investors. The software giant's stock only fell 3 1/16 to 86 15/16 but if you believe some reports, it might be the first sign of a substantial pullback.

Depending on whom you believe, the Department of Justice may or may not have "set sights" on a Microsoft "bust-up." While this possibility has certainly been in the back of investors' minds for some time now, the first published reports of this nature were surely disconcerting.

But before you cash out your Microsoft (Nasdaq: MSFT) shares in favor of some Novell (Nasdaq: NOVL), it's worth noting that even in a worst-case scenario, Microsoft shares will likely outperform the rest of the technology sector by a staggering margin.



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No one is saying this is definitely going to happen. In fact, DOJ spokeswoman Gina Talimona seemed to back away from a USA Today report late Thursday, saying the DOJ had "made preliminary inquiries to experts that might assist us in evaluating an array of remedy options."

USA Today reported that two investment firms, who chose not to acquiesce, were asked by the DOJ for an assessment of where the logical breakup points of Microsoft would be and how the market might react to such a move.

The harsh reality that the DOJ might consider breaking up Microsoft is something to consider. Would this necessarily be a bad thing for Microsoft shareholders? More intriguing, perhaps, is just how such a breakup would affect other companies, especially those that have carved out a nice niche of their own in markets that happens to overlap with one of Microsoft's broad interests.

If a breakup were to occur, these companies-especially the Internet service, software and publishing firms-would suddenly be facing a streamlined, focused and highly motivated company with an axe to grind.

It says here that some of these companies would prefer to let big, bad Microsoft continue on its merry way, making inroads in some areas but fighting the bureaucracy and passivity that seems to always infect gigantic corporations.

United or splintered to pieces, this company's got clout

Let's not kid ourselves. There's a reason the DOJ is checking this stuff out. It's the same reason every Microsoft basher giggles every time Judge Thomas Penfield Jackson opens his mouth. And it's the same reason that Microsoft's stock has split eight times since its 1986 initial public offering.

Maybe they've violated antitrust laws. Maybe they haven't. The truth undoubtedly is somewhere in between, in that nebulous gray area that all companies call home in a capitalist world.

Love 'em or hate 'em, Microsoft makes a ton of money for itself and its shareholders.

In its latest quarter, the boys and girls from Redmond hurdled analysts' estimates by 4 cents a share, earning $2.2 billion, or 40 cents a share, on sales of $5.76 billion.

That's impressive, but it's really nothing. For the fiscal year, it made $7.8 billion, or $1.42 a share, on sales of $19.75 billion. That's a 29 percent improvement from fiscal 1998 when it pocketed 84 cents a share on sales of $15.2 billion.

Before you hyperventilate, Microsoft said that it plans to see "slower" growth ahead this year.

Microsoft President Steve Ballmer tried to calm down analysts during its annual meeting last week, calling suggestions that it could achieve 25 percent sales growth in fiscal 2000 "outlandish and crazy."

"We have more competition than ever," Ballmer said. "We're fighting the law of large numbers in a way we've never fought the law of large numbers."

Translation: Wall Street keeps expecting us to shatter the ridiculously successful numbers we've put up for 10 years and counting and we're running out of horseshoes. But we'll find one.

Breaking up Microsoft would create some intriguing new stocks

From an investment standpoint, an argument could be made that Microsoft's parts would be worth far more than its sum. Imagine being able to independently invest in Microsoft's software company or its Internet business or even its cable television or telecommunications unit.

Does anyone need reminding that Lucent Technologies Inc. (NYSE: LU), formerly Bell Labs, was a big chunk of AT&T for a long time? Spinning that puppy off didn't seem to hurt either stock. In fact, if it was still under one umbrella, it's hard to fathom AT&T would have a market capitalization in excess of $370 billion as the two companies do now.

There's no question Microsoft's having a tough time positioning and executing its Internet business the way it has with other business units. But if that company was responsible for its own fate, free from the support and the tentacles of the Mother Ship, it might survive and learn to thrive. It would have to or it would be history.

Admittedly, there's a ton of conjecture in this whole scenario and myriad of problems and issues that no one could anticipate at this point. Just as many analysts and so-called "experts" will argue that a unified Microsoft is much more appealing as an investment than a combination of several spin-offs.

But all you Microsoft haters screaming for blood might want to ask yourself if the DOJ is doing anyone any favors.

If you believe in history, you'll recognize that breaking up monopolies in no way guarantees more competition, better prices, improved service or more jobs. Is your oil or gas any cheaper or easier to acquire than it was earlier this century? Even factoring in the fluctuations in inflation and the dollar. How about your telephone service?

But the leading oil and telecommunications companies are still the same names are still providing excellent returns to their shareholders.

Bottom line: Would you rather fight off one gigantic shark or five or six smaller, faster and more desperate ones trained by that giant shark?

Wall Street doesn't care either way. You as an investor don't care, either. You want profits and stock splits. The how and why are inconsequential.