Betting With Bill

By Daniel Kadlec

Let's put Microsoft's troubles in perspective. Since the government filed its antitrust suit 18 months ago, the company has won the Web-browser war, revenue growth has accelerated and earnings have been rising 10% per quarter. Put another way: Bill Gates' company has had a great year four times a year, even with the Feds breathing down its neck. Little wonder that the stock doubled in that same 18 months--the fourth such double in the past six years.

Microsoft's success has endless ripples. With more than 5 billion shares out and a market value exceeding $400 billion, the company is among those with the most widely owned stocks in creation. Virtually every institution holds Microsoft stock, including those that manage your retirement accounts. Fidelity Investments has 149 million shares spread among 60 funds. If the bottom ever falls out of this baby, look out. The collateral damage will be nuclear, especially now that Microsoft is part of the Dow Jones industrial average.

That's one reason not to sell in the wake of Judge Thomas Penfield Jackson's ruling on Friday. Things aren't as bleak as they seem, and the stock--depressed in recent weeks--could start to run very soon now that the bad news is out. In perverse Wall Street logic, "the cloud has been lifted," notes analyst Brian Goodstadt at Standard & Poor's. Except for Valley brats who compete with Microsoft (themselves fabulously rich), nobody really wants the stock to fail.

Certainly, Gates is more vulnerable now. But betting against him is the longest running mistake in the tech world. Microsoft has the resources and the moxie to survive and thrive. Start with an astounding balance sheet with $19 billion in cash. Interest alone will add $1.6 billion of earnings in the fiscal year ending in June, analysts estimate. That by itself is more than the annual profit of nine of 10 FORTUNE 500 companies. Gates exploits his money machine. He has large stakes in cable, Internet and telecom properties, pretty much assuring himself a big piece of the tech future, whatever it brings.

The browser wars are a good example. Netscape owned the market just two years ago. Microsoft, late to the Internet game, threw vast resources in that direction and now accounts for 64% of browser usage. Jackson's ruling means that Microsoft's capacity to assault a problem like that will probably be diminished in the future. But nothing is certain. The battle has just begun. Appeals could take years, and in the meantime the post-PC world may emerge in glory and render the judge's concerns moot. Do you want to miss another double?

That's not a prediction. Please. But Microsoft stock rarely falls far or long before buyers swoop in. With Office 2000 released this past summer and doing well and the much anticipated Windows 2000 to be released in February, there's plenty of fuel to drive the stock higher.

What's the worst-case scenario? For Gates, it would be the court-ordered breakup of his company, but the investor might not fare badly. AT&T's spin-offs have consistently beaten the market since the government split that company. Forcing Microsoft to make its Windows source code available, opening it to competition from software writers would sting. But it would also produce incremental licensing revenue. Forcing Microsoft to design Windows to boot up AOL or another Web address would erode its dominance. But PC makers are starting to win that kind of flexibility on their own. It comes down to a bet on Bill. He's had the answers so far, but he'll need to be nimbler from here on.

See time.com/personal for more on Microsoft. E-mail Dan at kadlec@time.com See him on CNNfn, Tues., at 12:45 p.m. E.T.