- The Washington Times - Thursday, April 27, 2000

The Justice Department's antitrust case against Microsoft has been pummeling Microsoft and other popular technology stocks, raising both political and economic risks for the Clinton administration, analysts say.
Each major turn in the case most recently, rumors this week that the government will move to break up the software giant has precipitated not only steep losses in Microsoft's stock but in the Nasdaq Composite Index, which includes many of the nation's high-flying technology stocks.
The Nasdaq saw a record one-day loss April 3 as investors braced for a ruling against Microsoft by U.S. District Judge Thomas Penfield Jackson. Since then, the case has wiped out at least $150 billion of the wealth and retirement savings of some 80 million investors who own Microsoft stock directly or through mutual funds.
"This case has rattled the markets," said Tom Hazlett, economist with the American Enterprise Institute. "This is the damning evidence that the market does not like the Microsoft case. The consensus on Wall Street is that the government is not going to make anything better. The government is perceived as a bigger problem."
Mr. Hazlett noted that many of Microsoft's competitors who urged the Justice Department to bring the case have taken a drubbing in the market since developments started to turn dramatically against the Redmond, Wash., company this month.
The stocks of Cisco, Sun Microsystems, Dell, Compaq and other companies that were expected to benefit from the case are not benefiting.
"It's not just Microsoft stock. I've been pummeled by the Department of Justice's case because I own a lot of Nasdaq stocks," Mr. Hazlett said. "This is a sign that the case is not a good case. If it were a good case, everything would go up but Microsoft."
Public opinion polls show Americans are skeptical about the merits of the government's case, which says that Microsoft used its monopoly on the Windows operating system to harm consumers. Most people, when asked, say they believe they have been helped by Microsoft.
Add to that the hundreds of billions of dollars lost by technology investors recently, and the White House has a big political headache on its hands, analysts said.
"You're going to see political fallout that does not help the incumbent party," Mr. Hazlett said, noting that President Clinton and Vice President Al Gore frequently take credit for the soaring stock market and robust economy. Now they could get pinned with some blame for the market's turbulence.
The Nasdaq as of yesterday was down 9.6 percent for the year after racking up a record 83 percent gain last year. Microsoft's stock closed yesterday at $68, down more than a third in the last month.
In a sign that the White House is concerned about the direction the case is taking, the president's economic advisers and Treasury Secretary Lawrence M. Summers called in antitrust chief Joel Klein for a briefing on the case Tuesday.
Mr. Summers said the case has "important economic ramifications." Most analysts took that to mean the impact the case is having on the stock market and potentially on the economic growth that has been fueled by technology firms and the stock market's gains.
Administration officials declined to say what happened at the meeting. Analysts said the White House was striving to avoid the appearance of interfering with the case, but nevertheless betrayed consternation about the potential for further sharp market reactions to developments in coming days.
The court deadline for Mr. Klein and 19 state attorneys general to propose breakup of the company or other remedies is tomorrow.
"The White House has to worry about the stock vigilantes," said Stephen Soukup, analyst with Prudential Securities. "When people see the government take action and immediately their mutual funds, 401(k)s and IRAs [individual retirement accounts] drop, they get upset."
The markets have reacted violently to the government's victory in the case because investors perceive that the nightmare of government interference that Microsoft is contending with and the hundreds of private lawsuits the case is spawning could happen to any technology firm.
"The new economy firms are not going to be allowed the free hand they had in the late 1980s and early 1990s, when they functioned without Washington's interference," Mr. Soukup said.
This plague on the high-tech sector can have serious economic consequences, he said. "Nearly all economists are in agreement that the high-tech industry and its productivity gains are driving this economy. If there's a problem in the sector, there are definitely economic implications," he said.
Kim Wallace, head of Lehman Brothers' Washington office, said there's little doubt that the case has broad implications for technology companies and stocks, and that's exactly what Mr. Klein intended.
"What Klein's after is a ruling that clearly will set markers or rules of practice for companies that operate in the global market and use electronic means to conduct their business," he said.
But he said the Microsoft case is only one of the factors roiling the markets and investors are not going to blame it for all their woes. Many people think the tech stocks were overvalued, and needed to decline some anyway, he said.
The case has added greatly to the loss of confidence in the markets, he said, but it is not a problem for Mr. Gore as long as the courts show convincingly that Microsoft harmed competition.

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