Whether

Microsoft

(MSFT) - Get Report

wins or loses a stay on European antitrust sanctions is certainly not a make-or-break matter for the world's largest software maker.

But a victory could remove one more overhang on the stock, while a loss could hurt Microsoft's longer-term business strategy.

Microsoft began making its case Thursday for a European Court judge to suspend antitrust penalties until an appeal is heard in the case, not likely for another few years. After finding that Microsoft uses its near monopoly in the operating system market to gain advantage in the server and media player business,

the European Commission in March ordered Microsoft to pay a $612 million fine, unbundle the Media Player from Windows in Europe, and provide server competitors with more information about its code.

Thursday, in Europe's Court of First Instance, Microsoft lawyers argued against the server penalty; the focus shifts to media player on Friday. Because the penalties could affect Microsoft business only in Europe, neither sanction would have a measurable effect on Microsoft's financials, which is probably why many investors aren't paying that much attention to the court proceedings.

Consider first that the monetary penalty represents less than half of the cash flow Microsoft generated from operations in its last fiscal quarter.

Then, to measure the effect on media player and Windows, consider that Windows sales represent about 30% of Microsoft sales, with Europe making up about 20% of that, bringing European Windows sales to only 6% of overall Microsoft revenue, noted David Hilal, an analyst at Friedman Billings Ramsey.

Only a tiny fraction of that 6% would probably be affected by unbundling media player, which comes free with Windows, noted Hilal, who has an outperform rating on Microsoft.

Microsoft's server business, meanwhile, accounts for about 15% of Microsoft's profits, Hilal noted. Assuming the European Court's sanction requiring Microsoft to open up server code hurts about 10% of the server business, which results in only a 1.5% hit to overall profit, Hilal said.

"I don't think there's any near-term consequence" from the sanctions, Hilal concluded. "It's more a perception issue than impact to the P&L."

"If they do get a stay, I think that will be favorable for the company and the stock," Hilal added. If not, "it's one more excuse to keep it

Microsoft stock from moving." (Hilal's firm hasn't done banking with Microsoft.)

Shares of Microsoft gained 7 cents, or 0.3%, to close Thursday at $27.65. On Friday, shares were recently up 51 cents, or 1.8%, to $28.16. The stock has been unable to break the $30 mark since early 2002.

Despite their minimal impact on financials, however, the European Court sanctions ultimately could hurt future Microsoft products and strategy, with the requirement on server code more troubling of the two product-related penalties, analysts said.

"It's irreversible," Hilal said. "Once you open up source code, you can't go back." Opening up the code would give rivals more insights into Microsoft's products that could not be taken back and allow them to make better, more competitive products, he explained. His analogy: Imagine that Pepsi would have done better if had the formula of rival Coke.

Transamerica Investment Management fund manager Chris Bonavico added that exposing proprietary code could also open more security holes in Microsoft server products.

He noted that Microsoft already does publish application program interfaces -- tools and protocols for building applications on Microsoft's operating system -- for developers. "There are thousands of software companies that do very well writing applications to the underlying Microsoft engine," said Bonavico, whose fund holds Microsoft shares.

On the other hand, the unbundling of the media player holds less importance to Microsoft, some say. "That's irrelevant I think," said Charlie Di Bona, a Sanford C. Bernstein analyst. "The media player battle is over."

Media player use is driven not so much by its availability on the desktop but whether content providers use its format, Di Bona argued. And currently most providers offer content via both Microsoft's RealPlayer and prime competitor

RealNetwork's

(RNWK) - Get Report

system. (Di Bona has an outperform rating on Microsoft and his firm doesn't do investment banking, but its parent, Alliance Capital, holds Microsoft shares.)

But Bonavico disagreed, contending the media player sanction is important primarily because of the precedent -- and the impact that precedent could have on Microsoft's bundling strategy. "If it's the media player now, what's next in the future?" he asked. "It opens this Pandora's box of them deciding what can and can't be included."

However, Bonavico acknowledges that Microsoft could be more open to compromise on the media player sanction issue than the server code requirement. Microsoft said earlier this week that it is prepared to unbundle media player.

It's expected to take the Court of First Instance a matter of weeks to come down with its decision on whether Microsoft will have to take such action before the case is heard on appeal.