Microsoft Faces Many Hurdles

THE future of United States technological prowess may in large part be found at this sprawling corporate site east of Seattle. This is the parent office of Microsoft Corporation, the dominant US computer-software firm - and an enterprise that makes even mighty IBM shudder.The sign at the main roadway here says it all: this is the Microsoft "campus." Nowhere to be found are the smokestacks and noisy factories of industrial America. Rather, scores of gleaming new buildings dot the tree-lined landscape, as collegiate-looking employees - almost all of them casually dressed - walk together to their offices. The average age among employees is 30. And the company, founded in 1974 by William Gates and Paul Allen, now controls 25 percent of the entire computer software industry, m easured by revenues. Microsoft had total revenues of $1.8 billion for the fiscal year ending this June. Next year should be even better, according to company officials and outside analysts. One way of measuring Microsoft's enormous clout: the No. 2 softwaremaker, Lotus Development Corporation, has about 12 percent of the industry's market share. Another way: International Business Machines Corporation, Microsoft's long-time collaborator, is now increasingly at odds with the Northwest company, underscored by Big Blue's new alliance with Apple Computer Inc. to develop software to compete with Microsoft. Microsoft continues to make substantial profits by creating not "things," such as computer hardware, but ideas - specifically, software, the operating systems and program applications - that go into computers turned out by other companies, such as IBM. And if anyone doubts Microsoft's zeal, consider this statement, found in the company's employee handbook: "The Microsoft corporate philosophy can be summed up in one word: destiny. Each of us can help create this future by taking the initiative to solve pr oblems, come up with new ideas, and make things work efficiently." Many stock analysts who cover the software industry recommend Microsoft, traded on the NASDAQ index. Scott Smith, of Donaldson, Lufkin & Jenrette Inc., rates the software industry in general as "favorable," with "significant market opportunities." He recommends Microsoft as a "moderately attractive" stock. But has Microsoft peaked? Should investors be especially alert? A few experts say so, including George Colony, president of Forrester Research Inc., a research firm in Cambridge, Mass. Mr. Colony predicts that within two or three years Microsoft will have major problems, because of a lack of clear corporate objectives and a "dilettante approach." Most of all, says Colony, Microsoft, and in particular, Mr. Gates, Microsoft's youthful chairman, has made a monumental mistake: it has directly challenged IBM. "Let's face it. IBM made this company," says Colony. Now, IBM is "directly opposing Microsoft," he says. Microsoft, notes Colony, faces two immediate hurdles: The Federal Trade Commission is studying whether Microsoft might have violated antitrust rules; if Washington eventually ruled against the firm, Microsoft might have to be split into two companies, an operating systems company and an applications firm. Meanwhile, Apple Computer is suing Microsoft, alleging that Microsoft borrowed Apple technology. Still, Microsoft employees don't seem overly concerned. And IBM? "The Apple and IBM thing is confusing to us," says one official, in deliberate understatement. For now, Microsoft is still upgrading its popular MS-DOS system, the operating system that was written for the IBM personal computer - and up until the split with IBM this year was the cement that held the two companies together. Meantime, Microsoft is working flat out to sell its newer Windows 3 operating system; and the company is seeking to convince computer users that they should wait for Microsoft's next generation technology rather than invest in OS/2, the operating system being pushed by IBM.

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