Shares of Microsoft Fall to 7-Month Low

Microsoft Corp. stock fell Wednesday to a seven-month low as investors grew increasingly concerned about bad publicity generated by the company’s bitter battle with federal antitrust regulators.

In Nasdaq trading, Microsoft shares fell $4.38 to $118.94, its lowest close since May 19.

“In my opinion the stock is trading in direct response to the legal activity,” said David Readerman of NationsBanc Montgomery Securities. “As the legal action between the U.S. government and Microsoft is intensifying, investors are heading to the sidelines.”

On Tuesday, Microsoft hardened its stance with three court filings that criticized U.S. District Judge Thomas Penfield Jackson and questioned his appointment of Harvard law professor Lawrence Lessig as a special master in the case.

Microsoft is still up 44% from last year’s close of $82.63, and some of the recent activity has been attributed to profit-taking ahead of what is expected to be a year of slow growth.

But Microsoft now has fallen 19% since Dec. 8, just before an order by Jackson triggered a flurry of legal activity in the conflict between the Redmond, Wash.-based company and the U.S. Justice Department.

Even industry analysts who support Microsoft’s uncompromising legal strategy said the company’s harsh language in court filings and public statements was turning the case into a public relations disaster.

“From a technical standpoint, I think they’re building a good case,” said Tim Bajarin, president of Creative Strategies, a technology consulting firm. “I have a hard time with the way they’ve kind of thumbed their nose at Justice. I don’t think that’s a wise move. That’s an attitude issue.”

The Justice Department launched the latest phase in the long-running legal saga Oct. 20, when it charged Microsoft with violating a 1995 decree the company signed to settle antitrust charges.

On Dec. 11, Jackson ordered Microsoft to offer computer makers the option of licensing its Windows 95 operating system without the Internet Explorer browser, while Lessig gathers more facts in the case.

Microsoft, which contends the browser is integral to the operating system, then said it would comply with the order by allowing computer makers to delete all browser-related code from Windows 95, rendering the product useless.

“This positioning so it looks like they’re not willing to do anything is just an amazing PR failure,” said Rob Enderle of Giga Information Group.

But analysts said Microsoft Chairman Bill Gates, whose own stake has drifted down to $32 billion from nearly $40 billion, always has focused on the long term, and company strategists feel any compromise could open the door to government involvement in the design of future software products.

“I think they’ve drawn their line in the sand here,” said analyst Rick Sherlund of Goldman Sachs.