Tech sector buffeted by Microsoft saga

Those who are puzzling over the recent volatility in technology stocks may want to check the winds blowing from Washington, D.C., and from Redmond, Wash.<br><br>Of course, everyone's attention has

Wednesday, April 5th 2000, 12:00 am

By: News On 6

Those who are puzzling over the recent volatility in technology stocks may want to check the winds blowing from Washington, D.C., and from Redmond, Wash.

Of course, everyone's attention has been focused on the federal government's antitrust case against Microsoft Corp. Settlement talks that fell apart over the weekend, coupled with a judge's scathing verdict late Monday, are contributing to uncertainty among investors.

What was once unthinkable, a breakup of the software giant, now appears to be a possibility.
And no one knows what a breakup of Microsoft would mean for all the "new economy" companies that have been driving the stock market in recent years.

At the same time investors are fearful about what a weakened Microsoft would mean for the industry, they are nervous about whether Microsoft will continue to act like a bully.

Last week, Microsoft announced its intention to enter the arena of companies that are creating Internet marketplaces for business-to-business transactions. The result? Shares in companies that might find themselves in the sights of Bill Gates - including Ariba Inc., Commerce One Inc. and Farmers Branch-based i2 Technologies Inc. - all took major hits.

"It's the three-ton gorilla, and they have all the time and resources in the world," Fred Bush, research analyst at Tejas Securities Group Inc., an investment banking firm in Austin, said of Microsoft. "Even if you're talking about companies that do $150 million to $200 million a year, if they decide to throw their weight around, they can. It puts fear into people."

Microsoft, with 1999 revenues of nearly $22 billion, said last week that it would be involved in a Web-based business-to-business exchange for the aerospace industry, in which companies including Boeing Co. would be able to buy parts.

Such exchanges have been announced by a host of industries. Automobile manufacturers in particular are hoping to shave vast sums off their procurement costs by making bids more competitive and by communicating more efficiently with suppliers. Microsoft's president and chief executive, Steve Ballmer, vowed that the company would have more such announcements to come.

Indeed, Microsoft is pledging to continue with business as usual as it appeals the judge's verdict. Although the company still may seek a negotiated resolution, the appeals process is expected to take years. Along the way, the case could be scuttled by changes in the marketplace or at the White House after the November election.

Among Microsoft's rivals, business as usual means no softening of the company's competitive edge.

Interest at Microsoft's Redmond headquarters in the so-called B2B, or business-to-business, market shouldn't be surprising. For months, B2B stocks have been the darlings of Wall Street. Investors like them so much because they expect them to cull fees in the hundreds of millions of dollars for managing online marketplaces. The overall B2B market is expected to mushroom to $2.7 trillion by 2004, up from $109.3 billion last year, according to Forrester Research Inc.

But word that Microsoft was looking to get into the market came just as some analysts were beginning to question whether the fees to the B2Bs were going to be so large after all.

Manuel Royo, an analyst at Southwest Securities Inc. in Dallas, says that nothing has fundamentally changed for the B2Bs and that reports of strong earnings results in coming weeks will return many stocks to their loftier perches.

"We're not going back to typewriters and telegraphs," he says. "This is real and these companies are right in the middle of it."
In fact, some technology stocks began to recover Tuesday as the bargain-hunters moved in, though prices are still a long way from recent highs.

I2 climbed $1.69 to $94.44. However, it's less than half its high of $223.50, reached on March 10.

"The market is definitely oversold," said Mr. Bush. "All these stocks needed to take a breather, but these have gotten knocked 50 percent or 60 percent. You'll see them start to slowly rise back up."

Mountain View, Calif.-based Ariba contributed to some of the recovery on Tuesday, with an announcement that its fiscal second-quarter revenue would beat analyst expectations because the company added more customers. Shares in Ariba rose $9.94 to close at $98.63, though the issue is still off from its high of $183.34 on March 8.

Investors took a wild ride on a number of Dallas-area Internet stocks on Tuesday.

Entrust Technologies Inc., a Plano-based maker of software for secure e-commerce transactions, saw its stock swing between $49.75 and $70, closing for the day at $58, off $6.69. Efficient Networks Inc. of Dallas, which supplies high-speed digital subscriber line technology for broadband Internet connections, traded as low as $76 and as high as $111.25. For the day, it was up $3.06 to $108.06.

For the B2Bs, Mr. Royo said, reaction to both bits of Microsoft news doesn't make sense.

For example, Microsoft isn't likely to be much of a competitive threat to makers of customer-relationship management software such as Austin-based Vignette Corp., he said. Vignette shares peaked on March 10 at $302 each before they began a serious slide, closing Monday at $123.03. On Tuesday, Vignette began to recover, climbing nearly 25 percent to $153.25.

"On the Internet, Microsoft has only been successful in crushing Netscape," Mr. Royo said.

Technology editor Alan Goldstein writes about the Internet and electronic commerce for The Dallas Morning News. His e-mail address is agoldstein@dallasnews.com.