Microsoft Corp. got bad news Monday from all corners - reports of decreased revenue, a soured market for personal computers and a possible breakup of the company - causing the once high-flying stock to plunge 16 percent.
"Anybody waiting for a reason to sell got it today," said Bob Dickey, a technical analyst with Dain Rauscher Inc.
The stock dropped $12.31 to $66.63, the biggest percentage loss since Oct. 26, 1987, a week after the stock market crash. Monday's close also represents a 44 percent plunge from the record high - $119.94 - recorded earlier this year.
Any move by Microsoft affects a lot of people. And that was borne out by the market Monday, when 156 million Microsoft shares changed hands on the Nasdaq, the third-largest volume in U.S. stock market history.
Here are some examples of the reach of Microsoft stock:
U One-third of U.S. stock funds own some, accounting for 842 million shares.
U Of the 5,438 U.S. mutual funds that hold stocks, more than 1,700 hold Microsoft.
U The nation's two biggest funds - Fidelity Magellan and the Vanguard 500 Index - are the two biggest holders of Microsoft.
It was those institutional investors that led Monday's sell-off. They dumped Microsoft after Goldman Sachs analyst Rick Sherlund downgraded it. Mr. Sherlund helped Microsoft go public in 1986 and is usually bullish on the software giant.
But Monday, Mr. Sherlund moved the software company to "moderate" from "outperformer" and removed Microsoft from his list of recommended stocks. He said he was concerned by reports of a slowdown in the personal-computer market.
"There is an increasing risk that Microsoft might atrophy on the PC platform as IBM did on the mainframe platform while robust growth shifts to hand-held and wireless devices," Mr. Sherlund told his clients.
Mr. Sherlund's change of position rattled investors' confidence.
"Institutional and big money sells when an analyst like that makes a move," Mr. Dickey said. "But in Microsoft's case, it's a combination of everything all at once."
Charles Smith, who manages three funds for J. & W. Seligman & Co. in New York, said individual investors should look at how much Microsoft they own. "I'd be concerned if Microsoft represented a disproportionate share of an individual's assets," he said.
Mr. Smith said he sold some shares Monday but still considers Microsoft "a strong company with a strong franchise."
Microsoft's troubles have been in the news for about two years as it fought an antitrust lawsuit with the government. About three weeks ago, a judge ruled that the company was a "predatory" monopolist.
News reports Monday said the Justice Department was crafting a penalty proposal that would force the software firm to split into two or three pieces.
Some shareholders say they have decided to disregard the bad news and hold their ground.
In for the ride
"If you're in it for the long term, you're going to ride the roller coaster," said Plano resident Hunter Groatman, who has owned Microsoft stock since it first went public. "We still believe Microsoft is a blue-chip company. Would I sell if I had a short-term position? Probably."
Monday's beating wasn't new for Microsoft. The software company has watched its shares drop 43 percent in the last 12 months, losing $260 billion of the company's market value.
During that time, Microsoft has spent millions fighting the antitrust suit.
The federal judge overseeing the case has told the Justice Department to produce its suggested penalty against the company within 20 days. Microsoft will have 10 days to respond. The company says it will appeal the original ruling and will reject a breakup.
What might happen
If the government does force the company to split into pieces, some analysts believe the move could increase value for shareholders, similar to what happened when the Justice Department broke up AT&T in 1974. The divested unit or units would probably be spun off to shareholders, analysts said.
"I trust shareholders will be compensated accordingly," said Mr. Groatman, an operations manager for Farmers Insurance Group. "I don't think it's a negative."
As an individual family investor, Mr. Groatman remained upbeat. But many large investors and money managers followed reports by Goldman Sachs and several other brokerages - and decided to sell.
Lehman Brothers Inc. added to the bad news by reducing the 12-month price target on the stock from $130 to $85.
Last week, Microsoft chief financial officer John Connors revealed that growth would fall somewhere in the midteens in fiscal 2001, compared with analysts' projections of roughly 20 percent.
The software company's downturn pulled down the rest of the market Monday. The Nasdaq composite index closed at 161.33, falling 4.4 percent to 3482.55. The Dow gained 62.05 to close 10,906.10, having recovered from the deep drop in the opening minutes of trading. The Standard & Poor's 500 index fell 4.68 to 1429.86.
The Nasdaq and the S&P 500 are weighted indexes in which Microsoft, the nation's most widely held stock, exerts a heavy influence. The software giant has less pull on the Dow, which values each of its 30 components equally.
Bloomberg News contributed to this report.