Ballmer urges staff to keep faith in MS

Since Steve Ballmer is famously alleged to have thrown a chair across the room when one of his engineers announced he was quitting the firm, news that Wall Street had wiped over US$30 billion off the value of his company in a single day probably didn’t go down too well.

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By  Peter Branton Published  May 7, 2006

|~|comment62bbody.jpg|~|Now is not the time to turn back, Ballmer urged Microsoft employees.|~|Since Steve Ballmer is famously alleged to have thrown a chair across the room when one of his engineers announced he was quitting the firm, news that Wall Street had wiped over US$30 billion off the value of his company in a single day probably didn’t go down too well. However, his reaction seems to have been stoic rather than histrionic: the Microsoft CEO sent a memo to all employees within a day assuring them that “now is not the time to scale back.” For those of you who missed it, last month saw Microsoft’s stock fall by the above amount after it reported sales for its fiscal quarter that were not as good as analysts were expecting and announced future spending plans. The firm said it was going to increase its spending in future quarters, especially in such areas as internet services, where it competes with Google amongst others. The market reaction was rapid: shares fell around 11%, the largest one-day drop for the company in more than five years, up to US$33billion. In something of an understatement, Ballmer said that the increased investment plans may have come as a surprise to Wall Street analysts. “The change in our stock price reflects this,” he noted. “Throughout our history, Microsoft has won by making big, bold bets,” Ballmer said in the memo, seen by various newswire services, adding that “I believe that now is not the time to scale back the scope of our ambition or the scale of our investment. While new opportunities are greater than ever, we also face new competitors, faster-moving markets and new customer demands.” Ballmer is hardly the first CEO to declare that his company is thinking long-term, while the stock markets are just looking for short-term gain: former Sun CEO Scott McNealy held to that line for several years, before agreeing to stand aside last month (see IT Weekly 29 April - 5 May 2006). In McNealy’s case, he was reluctant to cut headcount, seeing it as more important to keep the company’s engineers innovating on new products to help Sun long-term. In Microsoft’s case, the company said it will spend money on a number of different areas, including its video game business, but the bulk of the expenditure is expected to go on its online business. And this seems to be what has made Wall Street so nervous: it is costing Microsoft a lot more money to build up its online advertising business than it expected. That in turn is hitting the firm’s profit margins. Since Google is currently roaring ahead in the online advertising market, Microsoft could find itself drawn into a costly rivalry. Ballmer is almost certainly right that the firm has to invest now to develop its business in the future but that message does not seem to be what Wall Street wants to hear right now. ||**||

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