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CEO calls Microsoft forecasts ‘overly aggressive’

Microsoft Corp.Chief Executive Steve Ballmer said Thursday analysts’ forecasts for revenue from Windows Vista in fiscal 2008 were “overly aggressive,” sending shares down 1 percent.
/ Source: Reuters

Microsoft Corp. Chief Executive Steve Ballmer said Thursday analysts’ forecasts for revenue from Windows Vista in fiscal 2008 were “overly aggressive.”

Ballmer’s comments come two weeks after the world’s largest software maker released Vista, the upgrade to its ubiquitous Windows operating system, and predicted that consumers will move to Vista faster than past Windows upgrades.

In a strategy presentation to analysts, Ballmer said Vista will create a “small surge” in PC sales in fiscal 2008, but would not spur a big increase over normal growth rates.

“Some of the revenue models and revenue forecasts I’ve seen out there for Windows Vista are overly aggressive,” said Ballmer. “I don’t think that much new money will race out of the consumers pockets into PCs.”

In January, Microsoft made available Windows Vista after more than five years of development and numerous delays. Windows runs on more than 95 percent of the world’s computers and represents the company’s biggest profit driver.

The Windows franchise is the centerpiece of Microsoft’s business, because the company makes more than 75 cents in operating profit for every dollar of sales. The cash flow generated by Windows allows Microsoft to make investments in new business like digital music players and online services.

(MSNBC.com is a joint venture of Microsoft and NBC Universal News.)

Investor optimism about Windows Vista helped to push the shares up 30 percent since June even though the stock has dipped in recent weeks.

Microsoft shares fell 1.2 percent in extended trading Thursday to $29.10 from a Nasdaq close of $29.46.

Todd Lowenstein, a co-portfolio manager for HighMark Capital Management’s Value Momentum Fund, which has about 3 percent of its $1.5 billion in assets in Microsoft, said the market may have gotten a little too excited about Vista.

“The stock had a good run recently and maybe it got a little ahead of the fundamentals,” said Lowenstein. “There will ultimately be a migration to Vista and we think it’s going to be a huge catalyst.”

Redmond, Washington-based Microsoft forecasts sales at the Windows business to increase 11 percent to 12 percent in the current fiscal year ending in June from last year’s revenue of $13.2 billion.

When one analyst told Ballmer that he was forecasting for 6 percent growth in the Windows business for the 2008 fiscal year starting in July, the CEO laughed and said that was a “small but not tiny” number.

Analysts on average expect Microsoft to generate sales of $56.4 billion in fiscal 2008, which would be an increase of 12 percent from this year’s estimates, according to Reuters Estimates. Earnings per share are expected to rise 15 percent to $1.69 in fiscal 2008.

Ballmer forecast operating margins in Microsoft’s Windows and Office businesses — the company’s two biggest units — to be stable over the next few years.

Ballmer forecast Microsoft’s fiscal 2008 operating expense growth to be “somewhat less” than the previous year, likely a bit below $2.7 billion.

Last year, Microsoft stunned investors with a plan to spend an additional $2.7 billion in expenses across the company including about $500 million to beef up its online business.

“We will have moderating growth in operating expenses next year, but I wouldn’t expect a huge drop,” Ballmer said.

Microsoft said the company was willing to spend money to acquire online customers as it battles for share against rival Google Inc.. Ballmer said the company wanted to close the gap in online search against Google and continue to make strides in Web display advertising.

Ballmer also said Microsoft did not plan any major strategy shifts in how it returns cash to shareholders through buybacks and other means.

Microsoft started a share buyback program in August that   authorizes the company to repurchase up to $36 billion worth of its share through June 30, 2011.