Microsoft watches its stock swoon while competitors soar
An embattled Microsoft watched its stock swoon yesterday, while those of its competitors and their favored partners soared higher on speculation that the software giant is losing its monopolistic power. In the latest blow to Microsoft, America Online is said to be in talks with Netscape regarding an equity stake and a distribution contract. AOL currently has a deal with Microsoft.
"You could say that David found a buddy to help beat up Goliath," said one Wall Street wag.
One result of the talks, sources say, will be that 14 million AOL members will use the Netscape Internet browser to gain access to the World Wide Web.
"We are convinced that at least part of Microsoft's growth has come about because of using their monopoly to stifle competition," said Stan Fingerhood, an analyst with Security Capital.
Although AOL is currently under contract to give access to the Internet through Microsoft's Explorer browser, that agreement expires on Jan. 1, and AOL has good reason not to renew, analysts note.
Microsoft has been steadily building up its MSN online service to include travel offerings and chat rooms that are much like those found on America Online.
Faced with the possibility that Microsoft's MSN online service will become more of a competitor, AOL may be turning to Netscape instead. The agreement may eventually lead to America Online buying a large equity stake in Netscape.
That would provide a much-needed boost for Netscape, which has been faltering lately. Netscape's browser has been losing market share to Microsoft's, and Netscape's own website doesn't get nearly the traffic other popular sites like Yahoo.com get.
While many Internet stocks have posted gains of 100 percent or 200 percent or more in the past year, Netscape's one-year gain is only 27 percent.
Even while spokespersons for both AOL and Netscape declined comment, their stocks became the two most active in trading, as investors speculated about the profit potential of the new arrangement.
America Online rocketed 83/8, or 11 percent, to 833/4. Netscape soared 10, or 34 percent, to 391/4.
Microsoft, by contrast, lost 21/8 to 1093/4.
The talks between America Online and Netscape were just one of Microsoft's problems yesterday.
A federal judge ordered Microsoft to stop shipping software that illegally uses the Java programming language developed by Sun Microsystems Inc.
Sun Microsystems' stock jumped 046 . 0000.00to an intraday record high of 6913/16, before slipping to close at 665/8, down 1/16 from the previous day.
"The licensing fees that Sun collects on Java are more a matter of future earnings potential than current earnings potential," said Fred Dickson, an analyst with Branch, Cabell. "This is more a matter of bad news for Microsoft than good news for Sun."
Dickson predicted delays in 046 . 0003.01shipments of Microsoft products while its engineers and programmers scramble to replace the Java-based codes.
For its part, Microsoft characterized the setback as no setback at all.
"We don't anticipate any disruption to any products," said Paul Maritz, Microsoft group vice president.
But Wall Street watchers weren't so sure, calling the move a legal setback, as well.
046 . 0000.00"There are those who feel that this ruling is a prelude to a non-favorable ruling for Microsoft in its Justice Department case," said Rick Berry, chief investment strategist at J.P. Turner.
The Justice Department has put Microsoft on trial for using monopolistic practices to keep Netscape's Internet browser from potential users.
"In the perception sweepstakes, Netscape is the winner and Microsoft is the loser," said Berry.
-- Beth Piskora with E. Hecubus - 11/19/98