Microsoft in 2004: Grappling with New Challenges

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Excerpts

Microsoft's internal restructuring had been largely shaped by the events of the past five years. Though antitrust concerns had been expressed from time to time, it was in 1998, that Microsoft really began to feel the pressure. The government charged that Microsoft had tried to use its vast installed base and financial muscle to gain an unfair advantage over its competitors by bundling Internet Explorer with Windows 95 and modifying Sun Microsystems'Java language to make it Windows compatible. A federal judge ruled in 2000 that Microsoft had used its market power to violate antitrust laws. The prospect of two (smaller) Microsofts, looked real. Later, a federal appeals court struck down the initial ruling to break up Microsoft...

Realizing that growth had slowed down, Microsoft continued to look for new opportunities to diversify its revenue base. In 2001, Microsoft completed the $ 1.1 billion acquisition of Great Plains Software, which provided applications software for mid-sized and small businesses. The company also acquired enterprise software provider Navision for about $1.5 billion...

Software was one of the few remaining profitable segments in the IT industry. Fierce competition continued to hammer down the prices of PCs, disk drives, displays, cellphones, and Internet routers. Tell recently, this was not so in the case of software. But with open source challenging many commonly used software products, Microsoft's high 40% operating margins of the past were unlikely in the future...

Exhibit I: Microsoft Stock Chart
Exhibit II: Income Statement
Exhibit III: Segment revenue and operating income, determined in accordance with U.S. GAAP

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