Microsoft May Have Macro Worries

Until March, Microsoft was really enjoying 1991. Its latest graphic program, Windows 3.0, was a megahit, propelling the stock to an all-time high of 113. Then came the lawyers. On Mar. 12, the company confirmed rumors that the Federal Trade Commission is investigating it for anticompetitive practices. The admission came a week after a federal judge declined to dismiss Apple Computer Inc.'s copyright suit against the software powerhouse. It's no wonder that by Mar. 13, Microsoft Corp.'s stock had plunged to 100 1/2, down 11% from its early March high.

PaineWebber Inc. analyst Robert M. Therrien thinks the Apple suit could cost Microsoft up to $750 million in damages. The FTC investigation could do far greater damage: In the worst case, the government could force a breakup of Microsoft.

Chairman William H. Gates III counters such speculation by saying that the FTC investigation is limited to one narrow, largely technical issue concerning the competition, or lack thereof, between Microsoft and IBM. If that is so, few believe the investigation will amount to anything. (For its part, the FTC won't even confirm that it's investigating either company.) The question is whether the inquiry is really so limited.

A wider examination of Microsoft could rock the entire software industry. Competitors have long argued that Microsoft's inside knowledge of its own operating-systems business gives its applications programmers an insurmountable competitive edge. In theory, the FTC could conclude that the only remedy would be to split Microsoft into two companies: one for operating systems, the other for applications.

Most Wall Street observers are more concerned about the Apple suit, which alleges that Windows violates Apple copyrights on the operating system for its Macintosh line. Apple won a partial victory on Mar. 6, when Judge Vaughn R. Walker refused to invalidate Apple's copyright. But he also decided to examine 10 Windows features that allegedly violate the copyright rather than judging the "total concept and feel" of the programs. Legal observers think it will be easier for Microsoft to defend one feature at a time than the overall look.

It's too soon to say how the legal troubles will affect Microsoft. But to Wall Street, there are few things worse than unanswered questions.

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