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IDC: Microsoft breakup would benefit the industry

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01/12/2000 International Data Corp. (IDC) is arguing in a report that Microsoft Corp. and the industry would be better off if the company was broken up.

Microsoft offspring, divided along operating-system, application, tools and database lines, would then be free to offer products for other operating systems "and get away from the stranglehold of the NT-only platform," said one of the report's authors, Tony Picardi, an analyst at the Framingham, Mass.-based company. The report was prepared for clients of IDC.

Microsoft's continued goal of selling comprehensive, Windows-specific packages to customers is "unrealistic," said Picardi. Offering Microsoft-only solutions "is the same thing as saying 'We're not going to trade with you unless you speak English.' "

IDC believes the company could be divided along operating-systems and middleware lines; tools and databases; applications; hardware devices; and content and telecommunications.

Microsoft is fighting off the threat of a breakup in the antitrust case filed by 19 states and the U.S. Department of Justice. Government attorneys in the case have long favored structural relief-a remedy that doesn't require ongoing regulatory oversight-and that has generally either meant a breakup or selling of the Window's source code. One source close to the case said that while no agreement has been reached on just what to do, a consensus is beginning to emerge.

Investors would benefit from a breakup, Picardi said. New companies formed out of a broken-up Microsoft would have to go beyond the NT platform and offer products for Linux, Unix and mainframe operating systems. That move "would expand the market tremendously" for those non-operating-system companies, increasing the market valuation of those individual firms, he said. IDC is a sister company of Computerworld.

But Michael Geran, an analyst at the Pershing division of Donaldson, Lufkin & Jenrette Securities Corp. in Jersey City, N.J., said a breakup of Microsoft might not necessarily be the better deal for investors.

In Microsoft's case, the premium commanded by the stock "in part reflects three things: the perceived financial strength and synergy between the pieces; the balance and forecastability of the earnings, which are important to institutional investors; and liquidity concerns," he said. "While people may argue that the parts are worth more than the whole, sometimes the marketplace doesn't work that way."

The two sides have been involved in mediation talks in an effort to reach an out-of-court settlement. The parties are scheduled to return to court Feb. 22 to present final oral arguments before Judge Thomas Penfield Jackson issues his verdict.

"A breakup remains a highly unlikely scenario," argued one legal analyst, Hillard Sterling, an attorney at Gordon & Glickson PC in Chicago. "Microsoft would never agree to a breakup in a settlement and a breakup probably wouldn't survive the appellate process. A breakup is an overblown reaction to the government's relatively narrow claims," he said. "A breakup is totally unnecessary to enhance browser competition."

Microsoft spokesman Jim Cullinan said the company hadn't seen the IDC report, but said that Microsoft officials didn't "believe that there's anything in this lawsuit that would result or dictate into such a harmful and severe resolution like breaking up a successful company."

"I'm not sure what the rational is behind this report," said Cullinan," but "this suggestion of breaking up the company is just not good for the company, the industry or consumers."

For more enterprise computing news, visit Computerworld online. Story copyright 2000 Computerworld, Inc. All rights reserved.


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