Microsoft Becomes First $500-Billion Company

From Bloomberg News

Microsoft Corp. on Friday became the first company to top $500 billion in market value, equal to the ninth-largest economy in the world, as its shares closed at a record high.

Chairman Bill Gates’ holdings in the software giant neared $100 billion as the stock climbed $5.06 to close at $99.44 in heavy Nasdaq trading. The market value hit $507.5 billion.

The shares surged on prospects that the company will issue a tracking stock to more fully value its Internet assets, primarily its MSN network of Web sites. The software maker is likely to announce plans to issue such a stock soon, as early as this month, according to people familiar with the situation.


Microsoft’s shares have risen almost 500-fold since it went public in 1986, fueled by the explosive growth of personal computers and the fervor of co-founder Gates, the world’s richest man. Microsoft, founded in 1975, consistently posts earnings growth and profit margins of more than 30%. It reports earnings Monday and is expected to beat analysts’ estimates.

“They continue to drive the personal-computer revolution,” said Robert Finch, a portfolio manager with Aeltus Investment Management Inc., which owns more than 7.9 million shares.

“They plan to go beyond the PC platform to drive the benefits of micro-computing to a whole host of products and devices that people are only just starting to talk about.”

Microsoft also won a legal battle Friday when a jury found it didn’t deny access to its computer code to a small Connecticut software company, Bristol Technologies Inc. In its antitrust suit, Bristol had sought up to $263 million in damages.

A landmark antitrust trial involving Microsoft put some pressure on the price earlier this year from which the company recently rebounded. It stands accused by the Justice Department and 19 states of using illegal tactics to extend its near-monopoly in computer-operating systems to the Internet.

The Redmond, Wash.-based company’s $507.5 billion value is 34% higher than the gross domestic product of the Netherlands, estimated at $378 billion. If Microsoft were a country, it would rank as the ninth-biggest economy in the world, behind Spain with a GDP of $553 billion. The U.S. is the biggest economy in the world, at $8.23 trillion.


Gates’ holdings in Microsoft would reach $100 billion if the stock touches $100.84.

Gates, 43, co-founded Microsoft with school friend Paul Allen in 1975. Gates owns 991.7 million shares of Microsoft, or 19.4% of the company, and other investments unrelated to Microsoft valued at about $5 billion.

The relentless rise of Microsoft stock has created millionaires out of as many as a quarter of its employees, analysts said. An investment of $100 at the initial offering would be valued at $50,000 today.

The rise also catapulted Microsoft ahead of General Electric Co. as the world’s most valuable company in September. GE is now valued at $388.9 billion.

Microsoft would surpass $1 trillion by early 2001 if the stock continues to rise 60% a year, as it has done for the last decade.

Microsoft regularly reports earnings growth of more than 35% and net profit margins of 40%. Shares have more than doubled during the last 12 months.

The company on Monday will report results for its fiscal fourth quarter and is expected to beat earnings-per-share expectations by a penny or two. Microsoft will earn 36 cents a share, boosted by its new Office 2000 software, according to First Call Corp. estimates.

While Gates takes a high-profile role in the computer industry, he maintains a low profile as a family man. He lives in a $60-million mansion on the shores of Lake Washington, near Seattle, with his wife, daughter and son.

Criticized for his lack of philanthropy in the past, Gates has stepped up his charitable giving. Gates and his wife, Melinda, have donated more than $5 billion to family foundations and charities this year.

Allen also ranks as one of the world’s richest men. As of June, he owned 135.9 million shares, or 2.47% of Microsoft, valued at $13.5 billion at Friday’s close.

By comparison, Warren Buffett’s 39.9% stake in Berkshire Hathaway Inc. investment holding company is valued at about $42.5 billion, making him the second-richest man in the world.


Market Values

Microsoft is the most valuable company in America, measured by market capitalization (stock price times number of shares outstanding). Market caps for some major U.S. firms:

Company: Stock value (in billions)

Microsoft: $508

General Electric: $389

Intel: $223

Cisco Systems: $213

Exxon: $193

AT&T;: $177

Merck: $168

Coca-Cola: $160

America Online: $130

Procter & Gamble: $120

McDonald’s: $60

GM: $45

Source: Bloomberg News