Judge Jackson and Microsoft: The Final Days

Seymour still says there's not a lot of downside left in Microsoft. In fact, we've known the worst-case scenario for some time.
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I chuckled as I read about Judge

Thomas Penfield Jackson's

rulings Wednesday afternoon in the

Justice Department's

antitrust action against

Microsoft

(MSFT) - Get Report

. Just as I

expected, he responded in kind to Microsoft's seemingly less-than-serious reply to the DOJ's proposed remedies.

A checklist:

  • He all but ignored Microsoft's request for a lot more time to respond further to the DOJ's proposals, cutting them off with a curt "I am not contemplating any further process" remark from the bench.
  • He asked the government attorneys for a cleaned-up version of their proposed remedies.
  • He told Microsoft it would have exactly 48 hours to respond to that cleaned-up DOJ proposal.
  • He made it clear in his comments from the bench that he thinks a breakup is the answer.
  • He praised an industry group's friend-of-the-court brief -- "an excellent brief, an excellent brief" -- which went even further than Justice's demands, suggesting breaking Microsoft into three, not two, parts. It would add to the proposed operating-systems and applications companies one that holds the rights to Internet Explorer. In Judge Jackson's words: "The effect of a bisection will in effect be to create two separate monopolies, with no incentive to interfere with each other's profitability."

After court, Microsoft's response was a whiny complaint that since the judge had decided not to give the company its day in court on the issue of remedies, it would in its appeal take swipes at him: "We will be raising issues of procedure in our appeal, as well as issues of fact and law," sniffed Microsoft general counsel Bill Neukom.

Ahem

. Anyone who thought procedural issues -- that is, a critical review of Jackson's management of the trial process -- were not going to be part of a Microsoft appeal, please stand up. Thanks, both of you can sit down now.

I chuckled, too, Wednesday afternoon at the words of Microsoft-boosting talking heads who found comfort in Jackson's directions to the Justice Department attorneys to go out and try again on their statement of proposed remedies.

Take that!

, they heard in Jackson's words, a stinging rebuke to the DOJ for going too far.

Far from it, by my reading: Jackson was inviting Justice to go

further

in a clean-up of its proposals. Why else would he have so generously praised that

amicus curiae

brief suggesting a third slice in a dismembered Microsoft pie?

Again, in Jackson's own words to Justice attorney David Boies, when Boies Wednesday defended Justice's existing proposal to split Microsoft "only" in two: "You talk of the simplicity of implementation of your proposals, but they are anything but simple. I don't think

Microsoft will be willing to cooperate...."

Badda-bang

.

A number of readers wrote, in response to my

column about Microsoft not taking the judge seriously in its reply to Justice, that whatever Microsoft did now before Judge Jackson was irrelevant, and that they were in fact ignoring him.

"Everything now,

everything

, is a play to the appeals court," said one.

"Of course they're ignoring him -- as far as Microsoft is concerned, Jackson's jurisdiction in this matter is history, and Jackson is toast. Just wait 'til the

District of Columbia Circuit Court of Appeals

gets its hands on his rulings. He took his swipes at them in his findings of law, and now they're going to make mincemeat of him. There's no love lost among these D.C. judges," said another.

Fair points -- if just a tad overstated, perhaps, in the latter example -- that I wish I'd made clearly in that column.

The media is going to fall all over itself when Jackson's final remedies ruling comes through shortly, marveling at his courage and keening like paid mourners at a funeral over the terrible end to which Microsoft has come.

Oy vey

!

Don't buy it; that's a simplistic view. I still believe, as I wrote here in October 1998, that Microsoft's strategy, and a reasonable one, was to lose at trial, build a record, and then win on appeal. (And I still believe, for what it's worth, that it would be a mistake, unwarranted and foolish, to break up the company.)

Indeed, there cannot be a sentient being on the planet -- at least, not one who holds even a single share of Microsoft -- who has not heard of this trial, and has not factored his perception of the risk to Microsoft of the remaining possible outcomes into his estimate of an appropriate share price for the company.

Now what happens in this "dangerous summer" I've been predicting for the market -- and especially among tech stocks -- I think there's not a whole lot of downside left in Microsoft at current prices levels, in the mid-60s. We know the worst-case outcome -- dismemberment -- and have known it for some time. Jackson's actions over the past few weeks have effectively drawn a downside risk line under the stock.

As I see it, Microsoft is a fairly safe place to hide this summer, if you want to stay in tech stocks. Wednesday's words from Jackson confirm that: The risk is already priced into the stock.

How much upside is there, from Wednesday's 65 1/2? A lot, I think, if you're patient. Split or whole. Cracked or triumphant, Microsoft is still going to stand astride its industry, and as it succeeds in putting in place its "Next-Generation Windows Services" -- becoming, in effect, much more a services play than only a shrink-wrapped software builder -- that price could easily triple over the next two or three years. Nearer term, it's likely to gain a little, but not necessarily much: It remains, after all, trapped within the malaise afflicting tech stocks generally ... and its share price will also be depressed as long as

any

ambiguity remains about the outcome of these grotesque proceedings.

I don't think Microsoft in the mid-60s is going to look, a decade out, like the buy of the new century -- it's already too big, and the law of big numbers works against that -- but it could be at least a good parking place in a battered tech landscape.

Jim Seymour is president of Seymour Group, an information-strategies consulting firm working with corporate clients in the U.S., Europe and Asia, and a longtime columnist for PC Magazine. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. At time of publication, neither Seymour nor Seymour Group held positions in any securities mentioned in this column, although holdings can change at any time. Seymour does not write about companies that are current or recent consulting clients of Seymour Group. While Seymour cannot provide investment advice or recommendations, he invites your feedback at

jseymour@thestreet.com.