MICROSOFT MAY BE IN U.S. CROSS HAIRS, BUT INVESTORS SAY; SO WHAT?

Byline: Anne Marie Squeo Bloomberg News

As the nation's antitrust cops tell it, Microsoft Corp. Chairman Bill Gates is scheming to dominate the world's computer systems.

The response from investors? So what?

Although the outcome of the antitrust case could transform the company's business and its very structure, if a breakup is ordered, Microsoft shares continue to outperform the stock market. Since mid-May, when antitrust enforcers sued the world's largest software maker, Microsoft shares have outrun every major U.S. index, including the Dow Jones industrial average and the Standard & Poor's 500.

There's ``nothing like a monopoly to get investors to cheer you on,'' said Bob Djurdjevic, president of Annex Research, a Phoenix-based high-technology consulting firm. ``On the basis of pure financial logic, the fundamentals are sound. Monopoly pays.''

Investors rattle off a string of reasons, including the lack of surprises so far in the trial and a grinding legal process that could take years to yield a resolution. In the meantime, investors are happy to reap the lucrative rewards from Microsoft's allegedly cutthroat business practices and industry-dominant Windows computer system.

A case in point: investors cheered when the company reported better-than-expected fiscal first-quarter earnings Oct. 20, the day after the antitrust trial began in a Washington courtroom. Gates' videotaped denial he knew about the software giant's hard-ball tactics was contradicted by evidence from the company's own electronic mail, the government said. Microsoft's stock jumped about 10 percent.

Profit for the quarter ended Sept. 30 surged 58 percent to $1.52 billion, or 56 cents a share. Revenue for the same period rose 26 percent to $3.95 billion on strong sales of its Windows 98 and Windows NT systems. Microsoft officials promised more of the same for the current quarter.

With strong earnings and new products coming out, good news seems to offset any concern investors have about the trial, said Brett Berry, senior vice president and equity portfolio manager at Bailard, Biehl & Kaiser, which owns about 100,000 shares of Microsoft stock.

Microsoft denies it's a monopolist, even though the company's Windows operating system is loaded onto 90 percent of the world's new personal computers. Its market share gives Microsoft a lot of clout in the dynamic high-tech industry and a decided edge in extending its dominance to the Internet and other related markets.

The U.S. Justice Department and 20 states that sued Microsoft in May accuse the company of trying to snuff out competition from rivals whose technology could challenge its Windows dominance. Microsoft, with Gates at the helm, orchestrated a scheme of technological sabotage and exclusive licensing agreements to scotch any threat, the government alleges.

If the government prevails in court, Microsoft could be forced to change the way it does business. That might mean restricting agreements it can enter with other companies and forcing it to share its priceless Windows computer code with rivals. While a breakup of the company can't be ruled out, that long-shot prospect isn't making investors nervous.

``From an investor's point of view, it's hard to see a scenario that will dramatically damage Microsoft,'' said Bill Whitlow, manager of the $64 million SAFECO Northwest Fund that has its largest position, 6.5 percent, in Microsoft stock.

``Even in the worst-case scenario - busting up the company the way they did with AT&T - as an investor you ended up with more than you had before,'' Whitlow said.

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Photo, Chart

PHOTO (Color) no caption (Bill Gates)

CHART: NO SLOWING DOWN; Shares of Microsoft have increased more than 20 percent since its trial started in mid-May.