Legal costs bite Microsoft bottom line

Stan Beer
Friday, 21 July 2006 19:14

Your IT - Home IT

Litigation is starting to bite into Microsoft profits with monotonous regularly, with the software giant reporting a fourth quarter earnings plunge of nearly 24% due partly to a legal charge.

Although revenue increased by 16% on Q4 2005 to US$11.8 billion, earnings dropped to US$2.8 billion from US$3.7 billion.

Aside from the recent US$357 million fine from the European Commission (EC), Microsoft is currently facing a legal challenge from security company Symantec. There is also talk of possible action from Adobe, but that is yet to happen.

In 2004 Sun has ended its private antitrust lawsuit against Microsoft in exchange for a US$700 million payment over a Java dispute. Again in  2004, Microsoft agreed to pay $536 million to end an antitrust battle with Novell Inc over a Netware dispute.

In 2005, Microsoft and IBMsettled outstanding legal claims stemming from the U.S. government's antitrust case against Microsoft in the mid-1990s, which resulted in a $775 million payment to IBM.

In October 2005, Microsoft settled a US$761 million antitrust dispute.

These are just some of the claims that Microsoft has had to deal with over the past two years. The latest EC action increases Microsoft's exposure in the US to about US$1 billion. However, it is not just the horrendously large settlements that Microsft faces that are a worry.
 
There is also the associated legal costs. Microsoft has to foot the bill for an army of high priced lawyers to fight its never ending stream of antitrust and intellectual property dispute cases.

The past two years has seen Micrososoft's otherwise imoressive bottom impacted severely by legal charges. On top of this, growth in flagship products Windows and Office has slowed to a crawl in the wake of new product rekeases flagged for early 2007.

As if that wasn't enough, Microsoft has been forced to allocate more than US$2 billion of its considerable war chest to developing a presence in new markets outside its traditional base. The software company is once again making an attempt to reinvent itself as an online player.

However, a sign that Microsoft has more money than it knows what to do with is the announcement of a US$20 billion share buy back scheme.