Microsoft topples GE as king of the market

News Analysis: Bill Gates's all-conquering software giant now has the highest valuation on the Dow
AT EXACTLY what hour during Monday's market trading Microsoft overtook General Electric as the most valuable company in the United States nobody quite knows, but the milestone has attracted wide attention. The lion of the old economy has been toppled, goes the cry - the 21st century is here.

As a symbol of the new primacy of the technology sector as the engine of US prosperity, the vaulting of Microsoft to the number one spot, at least in valuation terms, is indeed powerful. Let us forget, for a second, that by every other measure GE remains vastly bigger than the house Bill Gates built.

It was only in July that GE, led since 1981 by Jack Welch, was basking in the glory reflected from the performance of its stocks. Then it became the first corporation in US history to achieve a valuation above $300bn (pounds 180bn). But that was back when the Wall Street bull still rampant. Everyone has felt the pain of the market turmoil of recent weeks; as it happens, though, GE has suffered more than Microsoft.

A race is now on almost as compelling for American spectators as the race on the baseball field for the all-time record for home runs struck in a single season between Mark McGwire of the St Louis Cardinals and Sammy Sosa of the Chicago Cubs. At Monday's close, Microsoft was valued at $261.2bn compared with $257.4bn for Connecticut-based GE.

Nobody else is even close. Third, but miles behind, is another leviathan of American industry, Exxon Corp, with a valuation of $171.9bn at Monday's close. Next comes beverages giant Coca-Cola with $156.1bn.

Microsoft has long been the standard-bearer of the hi-tech revolution, but GE might be seen to stand for the past, if only by virtue of its age. More than a century old, it was born in 1892 of the combination of Thomas- Houston Co and Edison General Electric. Moreover, it is the only company that has had its shares listed on the Dow Jones Industrial Average since the index's inception.

Its public image, moreover, is still overwhelmingly as an industrial manufacturer. It is known in particular for those big-ticket items that are especially vulnerable to cyclical downturns - large domestic appliances, from clothes washers to cookers, as well as aircraft engines. No less than 40 per cent of its revenue, however, comes these days from GE Capital Corp, its financial services unit.

Notwithstanding the recent toll on its shares, GE is hardly in the doldrums. If the bull returns it could quickly reclaim its $300bn crown. Confidence in the company derives in part from the extraordinary reputation of Mr Welch, 62. He is expected to stay at least until the end of 2000. Asked recently which chief executive in America he most admired, Microsoft's Bill Gates did not hesitate before naming Mr Welch.

GE's NBC television unit, meanwhile, continues to achieve double-digit growth and has reigned among the networks for five years. "GE has many businesses that have value and superior management," said Robert Spremulli, an analyst with Teachers Insurance, which holds 35 million shares in the company. "In the long scheme of time GE, with its makeup, will prevail."

For now, however, the winner's trophy is Microsoft's. That it has overtaken GE in the value stakes is remarkable from many standpoints. For one, it is still small by comparison. In the year ended 30 June, Microsoft had $14.5bn in revenue and $4.79bn in earnings. That compares with revenues at GE in 1997 of $90.8bn and earnings of $8.2bn.

With that in mind, Microsoft played down the significance of what, after all, was a paper victory. "While growing shareholder value is important, Microsoft doesn't view market capitalisation as a particularly critical measurement," a spokeswoman said. "Microsoft has been fortunate to be at the forefront of growth in the technology industry, but success can be fleeting in an industry so competitive".

If GE spells the industrial age, Microsoft has long been the icon of the information era. Its success in multiplying share value is the stuff of legend. With its dominating presence in providing software systems to personal computers and its success in exploiting the explosion of the Internet, it has seen its stock value multiply almost 5,000 per cent in 10 years.

The generosity of the company in distributing shares to its employees has delivered no fewer than 4,000 millionaires around its Redmond, Washington, base. These are the so-called Microsoft Millionaires.

And, in spite of well-publicised legal difficulties, Microsoft remains well positioned to sustain its growth. In a recent report, the US Commerce Department noted that the IT industry now accounts for nearly 8 per cent of the US economy. More strikingly, the sector can be credited for nearly a quarter of economic growth in the country.

Equally telling is the continuing willingness of investors to put their faith in Microsoft in spite of those legal storm clouds. This week, a judge in Washington DC rejected a Microsoft bid to have a potentially grave government anti-trust lawsuit against it thrown on. The first evidence in the government's case that the company indulged in illegal market practices to protect the dominance of its Windows platform, combined with new Web browser technology, will be heard on 15 October.