Microsoft Fights Back over Its Spending Plans

By Peter Galli  |  Posted 2006-05-05 Print this article Print

Opinion: After surprising Wall Street with news that it plans to spend an additional $2 billion in the next fiscal year, Microsoft executives moved to explain why. And that has brought some calm to the roiled waters.

Microsoft, which took a Wall Street drubbing after announcing on April 27 that its spending plans would impact future growth, ended this week on a far better note than the last one. Much of that is due to the fact that Microsoft executives have spent the past five days explaining to concerned staff and shareholders why such bold spending is necessary.
The spiral of the past eight days was set in motion on a media and analyst call to discuss Microsofts third-quarter financial results as well as the outlook for the last quarter and the next full fiscal year.
During that call, Rick Sherlund, a financial analyst with Goldman Sachs, asked Chris Liddell, Microsofts chief financial officer, if Microsoft was ramping up its online business and building a "Google or Yahoo" inside the company, given that its expenses were about $2.4 billion more than he had estimated. Liddell responded that while he would not get to the same $2.4 billion number, "I would characterize this as being a broad-based approach across multiple fronts. I dont think there is any Trojan horse there that we havent talked about that is sitting below the surface and that we dont want to talk about," he said. Click here to read more about the business challenges and opportunities Microsoft faces in 2007. The admission of that level of spending and its effects sent Microsofts share price southward. It slumped 11 percent, or $3.12, to $24.13 on April 28, the biggest single-day drop since Dec. 15, 2000. The shares then started the week of May 1 slightly better at $24.50 before slipping further over the week. The stock was last trading at $23.80 at 4 p.m. EDT on May 5. This share price fall slashed billions off the market capitalization of the company and millions of the holdings of some staff, a fact which probably did not bother Bill Gates, Microsofts chairman, chief software architect and largest individual shareholder. In fact, Gates said at an advertising event that he wished he were not the worlds richest man as "nothing good comes out of that." Next Page: Rattle and tempest.

Peter Galli has been a financial/technology reporter for 12 years at leading publications in South Africa, the UK and the US. He has been Investment Editor of South Africa's Business Day Newspaper, the sister publication of the Financial Times of London.

He was also Group Financial Communications Manager for First National Bank, the second largest banking group in South Africa before moving on to become Executive News Editor of Business Report, the largest daily financial newspaper in South Africa, owned by the global Independent Newspapers group.

He was responsible for a national reporting team of 20 based in four bureaus. He also edited and contributed to its weekly technology page, and launched a financial and technology radio service supplying daily news bulletins to the national broadcaster, the South African Broadcasting Corporation, which were then distributed to some 50 radio stations across the country.

He was then transferred to San Francisco as Business Report's U.S. Correspondent to cover Silicon Valley, trade and finance between the US, Europe and emerging markets like South Africa. After serving that role for more than two years, he joined eWeek as a Senior Editor, covering software platforms in August 2000.

He has comprehensively covered Microsoft and its Windows and .Net platforms, as well as the many legal challenges it has faced. He has also focused on Sun Microsystems and its Solaris operating environment, Java and Unix offerings. He covers developments in the open source community, particularly around the Linux kernel and the effects it will have on the enterprise.

He has written extensively about new products for the Linux and Unix platforms, the development of open standards and critically looked at the potential Linux has to offer an alternative operating system and platform to Windows, .Net and Unix-based solutions like Solaris.

His interviews with senior industry executives include Microsoft CEO Steve Ballmer, Linus Torvalds, the original developer of the Linux operating system, Sun CEO Scot McNealy, and Bill Zeitler, a senior vice president at IBM.

For numerous examples of his writing you can search under his name at the eWEEK Website at


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