Microsoft Fights Back over Its Spending Plans

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.

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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.