Microsoft Fined By the EU; Stock Implications

Excerpt from our One Page Annotated Wall Street Journal Summary (receive it by email every morning by signing up here):

EU Fines Microsoft $357 Million

• Summary: The EU fined Microsoft $357 million for failing to comply with its 2004 antitrust order to share code with rivals allowing them to develop Windows-compatible programs. The EU Competition Commissioner also threatened a fine of 3 million euros ($3.82 million) per day beginning July 31st until Microsoft complies. Microsoft provided 12,000 pages of technicl documentation, but the EU judged it unworkable. Microsoft says that it has 300 people working full time to provide the information, and that the EU shifted the goal posts. The EU says the fine is unrelated to the current work. Microsoft lost an appeal against the original ruling but can still appeal to the European Court of Justice. It may also appeal the ruling Wednesday to fine the company again.
• Comment on related stocks/ETFs: Eddy Elfenbein correctly thinks the new daily fine is significant. The fixed $357m fine should have less impact on Microsoft's stock (MSFT) due to the company's massive cash flow generation and the amount of cash on its balance sheet. The EU's tough stance is potentially more impactful on Microsoft's competitive position and ability to exploit its dominance of the operating system market. Potentially positive for Real Networks (RNWK).

Comments

[Benito Camela:]

We all knew the EU fine was coming -- The issue that scared people is the company's inability/unwillingnes... to deal with regulators. In general there is not much to gain fighting against bureacrats.

In this case the tree is not letting us see the woods -- This company is in front of a very strong product cycle that will increase EPS over the next few years.

Also, buybacks will continue to be acreetive --- remember with CF generation arroudn $1 billion or more per month they can reduce shares outstanding by 4 to 5% per year.

All in all you are talking about signifcant earnings and CF growth.

2006 Jul 13 08:17 AM

[Tom B:]

By rights, they should have faced fines like this in the US as well. They were convicted. But the on-the-take dunderheads in the current administration sold out. No surprises there; I have yet to see the current admin do one single thing for the public good.

MSFT creates a huige drag on the US economy by squashing superior companies and by reducing the per worker efficiency of anybody who uses their products (Windows/Office).

I expect they will (eventually) move a lot of Vista; it comes pre-installed on most PC's; people have to have the brains and savvy to consciously "opt out" of it. But don't mistake MSFT for a growth stock. Or even for a good value play.

2006 Jul 13 08:56 AM