Microsoft Corp investors said the US government's decision not to pursue the biggest software maker's breakup doesn't affect the company's sales and profit prospects.
"This is a non-issue for the stock," said Steven Salopek, a money manager at Banc One Investment Advisors, which owns Microsoft shares. "It's already been factored into the shares." Microsoft shares fell US$1.72, or 3 percent, to US$56.02. They have risen 29 percent this year.
The US Justice Department won't try to prove that Microsoft illegally tied its Internet Explorer Web browser to the Windows operating system, after a federal appeals court set aside that finding and ordered new hearings on it. The appeals court also had overturned the breakup order in June. Instead, prosecutors plan to seek restrictions on Microsoft's business practices.
"It's not big news in light of the appeals court decision," said Louis Kokernak, senior equity strategist at Austin, Texas-based Martin Capital Advisors, which owns 30,000 Microsoft shares.
"It's quite possible that we may see additional review of the competitive or anti-competitive effects of Windows XP by an organization like the EU, if not the FTC or the Justice Department," Kokernak added, referring to the EU and the US Federal Trade Commission (FTC).
"The Europeans clearly wield some power, and they have the ability to constrain Microsoft's trade overseas," he said.
Windows XP, the latest version of Microsoft's operating system for PCs, is due out next month.
"I thought there would be a better reaction, but we are just looking at an overall down market," said Aaron Scott, an analyst at Tucker Anthony Sutro Capital Markets, who rates the shares "buy." He doesn't own the shares.
The Dow Jones Industrial Average fell 198.43 to 9840.84; the NASDAQ Composite Index dropped 53.37 to 1705.64.
When a federal judge eventually imposes restrictions on Microsoft's conduct, sales and earnings may be affected. Bundling such features as instant messaging and Windows Media Player with the Windows operating system might be restricted, said DeAnne Steele, who helps manage money in the BNY Hamilton Large Cap Growth Fund at Bank of New York Co.
"That's what we don't know; that would hurt them," Steele said.
The government's turnabout caused some investors to buy Microsoft shares.
"We are definitely buying the stock; this is very, very good news," said Mike Green, managing partner of Benham & Green Capital Management LLC in La Jolla, California, which owns 88,301 shares of Microsoft.
"This is an about-face by the government," Green added.
"They are backing off, especially on the tying issue. It was always hard to see how the consumer would be hurt by getting something for free." The government's decision "brings more clarity and closure to the matter," Green said, and restrictions on the company's business practices won't "hamstring" Microsoft.
Green said he wasn't worried about the company's falling share price.
"I wouldn't read anything into it," he said. "If the market wants to drop it a couple bucks, we will buy more." Other investors said this is a good time to buy Microsoft shares, though not necessarily because of the government's decision.
"I'd be buying Microsoft, definitely," said Sunil Reddy, a money manager at Fifth Third Bancorp, which owns 3.58 million of the company's shares, according to a regulatory filing in June.
Reddy said the company's planned release of Windows XP would help boost the shares.
Microsoft rose 2.9 percent yesterday after chief financial officer John Connors said the company hasn't changed its sales and profit forecasts for the fiscal year ending next June. The company said in July that it expects profit of US$1.91 to US$1.95 a share on sales of US$28.8 billion to US$29.6 billion. The forecast includes an 8 percent rise in operating income, Connors said.
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