Possible settlement called 'big win' for Microsoft

Scott Hillis

SEATTLE: Microsoft Corp. will be able to avoid drastic changes in the way it

does business as it complies with terms of the proposed settlement of the US

Justice Department's anti-trust case against the software giant, analysts said

on Thursday.

Precise terms of the deal that eliminates most of Microsoft's legal troubles

were still unclear. But analysts said the rumored proposals so far appeared to

be much softer than court-imposed remedies issued last year but suspended as the

company appealed.

"It looks great for Microsoft," said Brendan Barnicle, an analyst

with Pacific Crest Securities. "Microsoft's not having to give up very much

here." "I don't think it really changes things very much for them in

terms of revenue or the business model," Barnicle said.

Microsoft shares surged $3.69, or 6.4 per cent, to $61.84 at the close of

trading on the Nasdaq, giving back some of those gains in after-hours trading.

The stock has risen about 50 percent this year but is off a 52-week high of

$76.15.

Significantly, the settlement does not appear to take aim at Windows XP, the

operating system Microsoft launched last week, which includes an improved music

and video player, instant messenger and links to other Microsoft-backed

services.

"The deal will apparently require few, if any, changes in Windows XP and

leave important aspects of Microsoft's power intact," Prudential Securities

analyst John McPeake said in a research note. "We see the current tentative

agreement as close to a best-case outcome," McPeake wrote.

Terms of the tentative agreement -- which does not yet include the 18 states

also involved in the case -- could give computer makers greater freedom in

offering non-Microsoft software and would open up some of the underlying code of

Microsoft's Windows operating system.

'A huge win'

The settlement does not go nearly as far as measures demanded by rivals who

would like to break up Microsoft, or at least have the company reveal much of

the inner workings of its Windows operating system or prohibit it from

incorporating new software functions into the Windows platform.

An appeals court affirmed in June that Microsoft had illegally maintained its

monopoly in personal computer operating systems but reversed an earlier court

order that would have broken up the company. The issue of sanctions was sent

back to a lower court, which imposed a Friday deadline to come up with a

settlement before going ahead with plans for hearings next March.

"The DoJ appears to have settled on the remaining monopoly maintenance

and anti-competitive behavior of 'co-mingling of software code' without any

major structural changes to Microsoft's business model -- a huge win for

Microsoft," Thomas Weisel Partners analyst David Readerman wrote in a

research note.

Tough to monitor

There might be provisions that Microsoft would have to loosen contracts with

PC makers, making it easier to remove some Windows features or replace them with

competing products when loading new machines. But analysts doubted that

requirement would hurt Microsoft very much.

"A lot of it they've already been doing. Microsoft is so closely tied to

those PC manufacturers, the question is how much PC manufacturers would enforce

it. They've really been Microsoft's ally through all this," Barnicle said.

Barnicle also questioned how effective any requirement to open up Windows source

code would be.

"I'm not sure enough people have a thorough understanding of the source

code. The devil is in the details and that only works to Microsoft's

advantage," Barnicle said. "The source code is obviously changing all

the time and it's going to be tough to monitor."