After 8 downs in a row, with a weak rebounce, MSFT announces

After 8 downs in a row, with a weak rebounce, MSFT announces

Down it goes. Why MER doesn't buy it by itself?

Ballmer delivers sobering message at Microsoft event

SAN FRANCISCO (MarketWatch) -- Microsoft Corp. Chief Executive Steve Ballmer tempered the expectations of analysts at an event Thursday, telling them their predictions for sales of the company's new operating system are too high, while those for its operating expenses may be too low.
The New York event was held by Microsoft to lend insight into the company's strategy for its fiscal 2008 beginning in July.
Without offering a specific differing forecast, Ballmer told assembled analysts their estimates for 2008 sales of the new Windows operating system, called Vista, are too high.
"The thing people forget is a new Windows release is a chance to sustain the revenue we have, every new Windows release is not necessarily a huge revenue opportunity," Ballmer said, adding that, "people are a little bit over optimistic, or more optimistic than we are about Windows revenue."
The stock, a component of the Dow Jones Industrials Average, fell 1.8% to $28.99 in pre-open trading on Friday.
Merrill Lynch followed by reiterating its buy rating on the stock, and its $33 price target.
"We think management is being conservative at the start of the product cycle," Analyst Kash Rangan said in a research note.
The consumer version of Vista was released in late January, following a release to businesses in November. Microsoft deferred roughly $1.6 billion in Vista-related revenue from its third quarter into its fourth quarter of 2007, resulting from delayed recognition of holiday sales.
In fiscal 2008, however, Ballmer said "non-corporate upgrades" to Vista will not increase at a dramatic pace, following "such a large surge after the release."
Ballmer cited software piracy in some emerging markets as at least part of the reason for slower Vista sales. "Chips don't get stolen in some of these countries and software does," Ballmer said.
Later in the event Ballmer seemed to offer some consolation. When an analyst mentioned that his anticipation for sales growth in Microsoft's Windows client unit, which includes Vista, is 6% in fiscal 2008, Ballmer responded that, "that's a small number," though he added that it is "not a tiny number."
Wall Street analysts surveyed by Thomson Financial expect Microsoft to report earnings of $1.47 a share on revenue of $50.55 billion in fiscal 2007, and $1.70 a share on $56.43 billion in revenue in fiscal 2008. Microsoft is due to offer a more specific financial forecast for fiscal 2008 in April.
Another area analysts were interested in hearing more about at the event was Microsoft's plans for operating expenses in 2008. Some analysts had felt the company did not adequately prepare them before it announced a $2.7 billion increase in operating expenses for fiscal 2007 in April.
In this area, too, Ballmer seemed to want to temper expectations. He told analysts that they should expect only "a small drop from the $2.7 billion increase" for 2008, adding later that the company "may come back to you some time during the year and tell you that we'll increase it."
Specific areas requiring heavy investments, Ballmer said, include Microsoft's online services, including search and advertising. Microsoft currently ranks third in online search usage, behind number one Google Inc.  and number two Yahoo Inc. 
Ballmer defended Microsoft's progress in search technology, which he said the company only began developing in 2003, by acknowledging that Google, especially, is a tough and innovative competitor.
"It's not like Google sent everyone home for a year," allowing competitors to catch up, Ballmer said. 
John Letzing is a MarketWatch reporter based in San Francisco.