Microsoft Breakup The big news item recently in the computer (and business) world is the Justice Department’s idea on what should be done with Microsoft now that Judge Penfield Jackson has declared that they have abused their monopoly position in the software industry. The Justice Department and 19 states (or at least 17 of the 19 states) have proposed splitting Microsoft into two parts. The Windows business would be split from the Applications business. Microsoft would have to submit a breakup plan within four months, the two companies would have separate boards of directors, and the breakup would have to last for at least 10 years. The breakup, however, would not take effect until Microsoft had exhausted the appeals process. Bill Gates said that Microsoft could never have developed Windows under such rules, that they are bad for the software industry and software consumer, that such rules make no sense, and that Microsoft is sure that an appeals court will overturn such a ruling if a court does implement it according to the Justice Department’s recommendations. The Justice Department’s Joel Klein portrays the Department’s actions as in the best interest of computing and the consumer.

You be the judge. For myself, I sort of like Microsoft, don’t really think the lawyers at Justice understand software, think they have a bias against Microsoft (they use WordPerfect at the Justice Department) and don’t think that their actions will lower the price of software to the consumer. Now, instead of one monopoly, after the breakup we will have two monopolies. That said, I do think Microsoft has done some pretty low things over the years to its competition—just about the same as the competition would have done to them if they could have pulled it off. I seem to recall that one of the goals of the Netscape crowd when they were riding high (for about six months) was the destruction of Microsoft by rendering everything in computing browser centric with the removal of the Windows desktop environment to the margins of computing.

Stock Values Of course, with the news of the possible breakup of Microsoft, its stock took a dive along with the values of many other computing related stocks (including the stocks of Microsoft’s enemies) and the tech sector as a whole. And some pundits were quick to claim that the Justice Department was putting the economy into a tailspin. I agree that the recent Microsoft problem was good reason to devalue its stock, but I don’t think we can blame Microsoft’s woes for the decline of the stocks of all those dot.coms that have very little product and no income but were valued up there with the giants of American industry. Here are some examples of the deflation in such stocks. I gathered the information the latter part of August.

RedHat Inc. (RHAT): close 27 3/8 on 4/26/2000; 52-Week High 151 5/16 on 12/8/1999 ; 52-Week Low 20 on 8/11/ 1999. The close is about 18% of the high.

VA Linux Sys (LNUX): Close 42 1/2 on 4/26/2000; 52-Week High: 320 on 12/9/1999; 52-Week Low 26 7/8 on 4/14/ 2000. The close is about 13% of the high.

Ivillage Inc. (IVIL): Close 10 1/16 on 4/28/2000; 52-Week High 79 on 5/3/1999; 52-week Low 9 1/2 on 4/4/2000. The close is about 13% of the high.

drkoop.com Inc. (KOOP): Close 2 3/4 on 4/28/2000; 52-Week high 45 3/4 7/6/1999; 52-Week Low 1 15/16 on 4/18/2000. The close is about 6% of the high,

Peapod Inc. (PPOD): Close 3 on 4/28/2000; 52-week High 16 3/8 on 11/5/1999; 52-Week Low 2 on 4/14/2000. The close is about 18% of the high.

Cdnow, Inc. (CDNW) Close 4 5/16 on 4/28/2000; 52-Week High 23 17/24 on 7/12/1999; 52-Week Low 3 on 4/17/2000. The close is about 18% of the high.

And one that is not quite as bad as those above:

Amazon.Com Inc. (AMZN) 55 3/16 on 4/28/2000; 52-Week high 112 3/8 on 12/9/1999; 52-Week low 40 3/16 on 4/14/2000. The close is about 49% of the high.

And to make maters worse, these companies and many, many other dot.coms have only enough cash on hand to keep spending at their current rates for just a few months, which introduces the following shocking item—at least to me as a long time Corel Draw user, it is shocking.

Corel in its quarterly filing with the Securities and Exchange Commission said a "cash deficiency" may occur if its merger with Imprise/Borland isn't approved by shareholders or the company fails to secure other sources of financing.

Quoting the Wall Street Journal, "Last month, Corel reported cash holdings of about $29 million along with a $12.4 million loss for the quarter ended Feb. 29. It said the prospects for the next two quarters wouldn't improve because of falling sales of its two main products, the WordPerfect and Corel Draw software applications."

When you note that Imprise/Borland has about $250 Million in cash, you can see why Corel might want the merger. It is less clear what Borland will gain other than software that is apparently not selling well and Corel’s gamble with Linux, which also may fail. u