- The Washington Times - Tuesday, April 4, 2000

Anticipation of yesterday's unfavorable ruling in the Microsoft case turned a marketwide sell-off of technology stocks into a stampede yesterday that drove the Nasdaq Composite Index down 349 points in its largest-ever loss.

The 7.6 percent drop in the much-heralded "new economy" index left the Nasdaq at 4224, down 16.3 percent from the high it set last month and in what some analysts call bear market territory.

Despite yesterday's drubbing of Microsoft shares, which plummeted 14.5 percent on the first day of trading since settlement talks with the government broke down Saturday, "old economy" indexes managed to gain ground, bolstered by a monthlong trend of investors shifting from high-flying technology stocks into tried and true blue chips.

The Dow Jones Industrial Average shrugged off an 83-point loss attributable to the Microsoft plunge and rose 300 points to 11,222, led by a surge in financial company stalwarts American Express and J.P. Morgan.

"Microsoft kick-started the selling, but the weakness is pretty intense across the board" in technology stocks, said Kenneth M. Sheinberg, head of listed trading at SG Cowen in New York. "A lot of these stocks went straight up for months, and now they're going straight down."

U.S. District Court Judge Thomas Penfield Jackson ruled yesterday that Microsoft Corp. violated the Sherman Act, a century-old antitrust law.

"What the Microsoft case does is demonstrate that even a class-act technology company is vulnerable to bad news," said Edward Yardeni, chief economist with Deutsche Bank Alex. Brown in New York. He predicted that the nation's millions of Microsoft investors will see more big ups and downs this year with each development in the antitrust case.

Microsoft, with a market capitalization of $473 billion, is one of the most widely held stocks on earth. Yesterday's massacre caused it to drop into third place, however, behind General Electric and Cisco after years as the largest company in the world by market capitalization.

Still, yesterday's "tech wreck" was a long time coming, and really got started a month ago when President Clinton inadvertently burst the bubble in biotechnology stocks by asserting the government's intention to regulate the sector, Mr. Yardeni said.

"A lot of stocks got annihilated," he said. "Then investors started looking down and saw nothing but lots of air and not much in the way of earnings from technology companies" and they started selling stocks right and left, he said.

After tremendous hype about technology sent the Nasdaq to an unprecedented 83 percent gain last year, investors started to come down to earth early this year when they saw many electronic retailers report disappointing earnings because they relied heavily on costly advertising to generate record Christmas sales.

Lately, many technology companies have been disappointing investors by restating their earnings using more realistic accounting standards.

As more hard realities emerge, Mr. Yardeni said, investors will prefer to stay in the stocks of proven "old economy" corporations that produce reliable, steady earnings each year even if they are not as spectacular as some technology stocks.

"There is some sense coming back into the market," he said.

Mr. Yardeni is one of many economists who believe the government's case against Microsoft is ill-advised, given the highly competitive and fast-changing technology arena.

"The reality is what drives the new economy is competition. Why do we need the regulators?" he said. Despite allegations that Microsoft used a monopoly on its Windows operating system to overcharge customers, Mr. Yardeni said "the public's not particularly riled about what they're paying for technology."

Still, investors yesterday appeared to be bracing for the worst a breakup of the software company. Investors would have preferred a settlement in the case, even if that meant Microsoft had to give competitors more access to its Windows technology secrets, analysts said.

"Getting the news out and the uncertainty over with and moving ahead was the best thing for the government and for Microsoft," said John Davidson, chief investment officer at Orbitex Management Inc., one of thousands of funds that hold Microsoft stock.

Still, he conceded that "if the company is broken up, the pieces might be worth more" than the whole company is now.

Microsoft's woes affected the Nasdaq more yesterday than the Dow because Nasdaq is a weighted index, giving more significance to larger companies. The Dow gives equal weight to each of the 30 stocks in the average.

• This article is based in part on wire service reports.

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