News > Technology
Worm should make Microsoft squirm
The latest attack on Windows is not something investors should ignore.
August 13, 2003: 2:35 PM EDT
By Paul R. La Monica, CNN/Money Senior Writer

NEW YORK (CNN/Money) - Wall Street doesn't fear the worm.

Despite the fact that many computers running on Microsoft's most recent versions of the Windows operating system have been infected by a computer worm dubbed Blaster or LoveSan, shares of Microsoft (MSFT: Research, Estimates) have barely budged the past few days, falling 12 cents Wednesday after a 12-cent gain Tuesday.

But should investors be a little more worried?

The latest in a series of problems

"I'm a little surprised the market isn't acting more negatively," said Adam Adelman, senior technology analyst for Philippe Investment Management, an investment firm that owns shares of Microsoft. "This does expose a real threat and Microsoft has always had the problem of shoring up confidence regarding its security flaws."

Blaster is more nefarious than other types of worms and viruses because it spreads through Internet connections so people didn't have to open an infected e-mail attachment to trigger it.

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Still, the worm did not appear to do major damage to most big corporations since Microsoft warned July 16 about the vulnerability in its software that the worm targets.

But Blaster is just the latest in a series of worms and viruses that have shown how susceptible Microsoft's software is to attacks. Remember the Melissa virus in 1999, the ILoveYou bug in 2000 and Code Red worm from 2001? And earlier this year, a worm known as Slammer temporarily shut down thousands of ATM machines and caused some airlines to cancel flights.

Microsoft, the world's largest software company, has been a prime target of hackers for years, yet the company still gets hit periodically. To paraphrase Desi Arnaz, Microsoft's got some splainin' to do.

"This is a glaring, embarrassing problem that Microsoft has to fix," said Richard Williams, strategist for Summit Analytic Partners, an independent research firm that focuses on software.

To that end, Microsoft did announce in June that it was purchasing the technology and intellectual property assets of a small Romanian anti-virus software company, a move that indicates Microsoft probably is looking to build its own anti-virus capabilities as opposed to buying one of the major anti-virus firms such as Symantec (SYMC: Research, Estimates) or Network Associates (NET: Research, Estimates).

Shares of those two companies, as well as anti-virus firm Trend Micro (TMIC: Research, Estimates), moved slightly higher Tuesday and were up Wednesday as well, on the hopes that Blaster will lead to a short-term pop in business as affected users buy more software patches to fix the problem.

"Normally, big viruses are good news for the anti-virus companies. The scarier, the better, since that's what motivates people to buy patches in the first place," Williams said.

Boost for Linux?

Longer-term though, Microsoft needs to do a better job of identifying and fixing potential glitches before an attack instead of relying on Symantec or Network Associates if it wants to maintain its stranglehold on the operating system market.

One analyst joked that the author of the latest worm probably was an avid Linux user, referring to the free open source operating system that competes with Windows.

Of course, Microsoft isn't going to lose millions of customers overnight because of Blaster. Microsoft obviously is helped by the fact that its software is so entrenched in the computers and servers used by most businesses.

"If Microsoft was not in the monopoly position that it is in, the increasing frequency of security concerns would cause more anxiety in the marketplace," said Michael Mahoney, managing director of EGM Capital, a hedge fund focusing on technology that owns Microsoft and Symantec.

But it's worth noting that the stock has lagged the broader tech market this year as investors begin to fret that the company's growth is slowing. Linux certainly is one of several competitive threats.

"When you consider alternatives such as Linux, arguments in favor of Windows are not as appealing," Adelman said. "This worm was basically an exercise to show off the flaws in Microsoft security and Microsoft didn't fare too well."  Top of page

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