Microsoft fuels trend away from technology

Blame it on Microsoft Corp. if you must, but the Nasdaq stock market was already one very sick puppy even before Monday's selling frenzy.<br><br>"Microsoft provided that last little push off the cliff,

Tuesday, April 4th 2000, 12:00 am

By: News On 6

Blame it on Microsoft Corp. if you must, but the Nasdaq stock market was already one very sick puppy even before Monday's selling frenzy.

"Microsoft provided that last little push off the cliff, but the technology sector has been losing momentum for weeks," said Richard Cripps, chief market strategist at Legg Mason Inc. in Baltimore.

Microsoft shares fell about 14 percent during regular trading hours Monday after a court-appointed mediator announced Saturday that he was abandoning settlement efforts in the government's antitrust case against the software giant. After the market closed Monday, a federal judge ruled that Microsoft violated the Sherman Antitrust Act by "unlawfully tying its Web browser to its operating system" and also could be sued under state anti-competition laws.

A new round of hearings will be held to determine what punishment to impose on Microsoft, including the question of whether the company should be broken up.

Despite the fierce sell-off, some! ! analysts were already predicting Monday that investors ultimately could profit from Microsoft's travails. In fact, the company's stock was up almost $2 a share in early after-hours trading.

The rapid unraveling of Microsoft shares obviously contributed to the Nasdaq composite index's near 350-point drop Monday, but many analysts were warning of a severe downturn in technology stocks long before Microsoft's problems arose.

The Nasdaq - widely used as a barometer of the nation's technology stocks - climbed 86 percent last year and was up another 18 percent by March 10 of this year before investor sentiment began to shift. That was too much, too fast, said Terry O'Brien, technology analyst at Branch, Cabell & Co. in Richmond, Va.

"This [Microsoft sell-off] was just the last signal that the bubble is bursting in the technology sector, and it's time to put some money elsewhere," said Mr. O'Brien. "Money is now rotating out of technology and into some of the large, blue chip ! ! companies in the Dow.''
Indeed it is.

While the Nasdaq was in near free fall Monday, the Dow frolicked its way to a 300-point gain. It should be noted that Microsoft is also one of the Dow components - and shaved about 75 points off the average - but the other companies in the Dow more than offset that loss.

Larry Wachtel, market analyst at Prudential Securities Inc., said Microsoft's antitrust problems won't have any lasting effects on the broader stock market.

Other sectors of the market, such as financial services, energy, retail and utilities, are all doing well - "everything except technology," he said.

And that's an important point, said Brian Sayers, manager of the Dallas office of CIBC Oppenheimer Corp. in Dallas. Investors are not leaving the market; they are just moving their money around.

"What happened at Microsoft doesn't have much larger significance for the market,'' said Mr. Sayers.

While Microsoft's problems certainly enhanced Monday's Nas! ! daq losses, many analysts believe technology companies will rebound in the coming months. In fact, many companies will begin reporting first-quarter earnings in early April, and most analysts are expecting technology companies to meet or beat Wall Street expectations.

That could be the catalyst that lures investors back into tech stocks, analysts said.

Mr. Wachtel said Microsoft's problems may even help some of its competitors. For example, makers of Linux software, which competes with Microsoft's Windows operating system, could gain a foothold in that market if Microsoft stumbles, he said. Shares of VA Linux Systems Inc. rose $1.94 a share to $62.31 Monday.

"This is a legal problem for Microsoft that has nothing to do with, say, a lack of demand for technology products,'' said Mr. Wachtel.

As for individual Microsoft shareholders, most analysts believe the stock price will trade in a range of between $75 and $120 a share for the next six months. In other words, th! ! ere is still some downside risk as the case is litigated.

"I am recommending that short-term investors may want to redeploy their assets into something else during this period,'' said Mr. O'Brien.

However, if the judge orders a breakup of Microsoft into, say, three companies, long-term investors may want to hold their shares, he said.

They could end up owning shares in three excellent growth companies, Mr. O'Brien said. Microsoft could be split into a software company, an operating systems segment and a networking segment, analysts said.

"A breakup isn't necessarily a negative for investors,'' he said. "Microsoft has some strong products, and a breakup might make all of them more nimble and efficient.''