Microsoft’s Alcatel Loss Is Not Serious

Don’t panic! That’s the advice from Microsoft (MSFT) axe Rick Sherlund at Goldman Sachs, following a Federal jury’s order for the software maker to pay Franco-American telecom equipment vendor Alcatel-Lucent (AL) $1.52 billion in damages for infringing the company’s patents on the MP3 technology used to encode digital music files.

That $1.52 billion is way less than what Al-Lu had been asking — $4.5 billion, says Sherlund, and it amounts to only six weeks of cash flow at Microsoft, or 15 cents-a-share in earnings.

If and when Microsoft recognizes this charge, we expect most analysts would pro forma it out as has been the case historically. Patent cases also tend to drag through the appeals process so this may not be the final judgment. We observe Microsoft has ten counter claims pending, perhaps implying some eventual negotiated settlement.

No change to Sherlund’s Buy rating on Microsoft, he says. Sherlund’s most recently published price target for Microsoft shares, as far as I can tell, is $33.

(Shows how much I know for saying intellectual property was a tough business.)

Microsoft shares were down a fraction after hours at $29.32. The shares are down 2% this year. Al-Lu shares were up half a percent at $13.21. They are down about 8% this year.