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Microsoft Gives Up the Grail

Ballmer: That didn't go over so well.
Flunky: The reaction seemed about 50-50.
Ballmer: At best.

That was elevator chitchat overheard by a Business 2.0 reporter and relayed on a blog by the magazine's Owen Thomas. Microsoft (MSFT - Get Report) CEO Steve Ballmer had just emerged from a meeting with analysts in Manhattan last Thursday.

Yes, that meeting -- the one at which he uttered those magical, market-cap-killing words about the company's new Vista operating system: "Perhaps people are somewhat too bullish."

On Wall Street, of course, that's the same thing as wandering down a dark alley and wondering aloud if you have too many $100 bills in your wallet.

Microsoft tumbled 2.4% to $28.74 Friday, its lowest level since Nov. 3. In just a few minutes, Ballmer managed to suck more than $7 billion in market cap out of Microsoft's stock. (On Tuesday, shares regained 8 cents to $28.83).

There has been a lot of back-and-forth in the days since Microsoft's CEO said Vista sales could come in below analyst forecasts. Some argued that Microsoft is notorious for downplaying its projections so it can leave room for earnings surprises later on.

Others countered that the tactic was foolhardy this time, given the anxieties surrounding tepid Vista sales.

A careful reading of the transcript of the analyst briefing provides more insight. For one thing, Microsoft recently started recognizing more revenue up front rather than spread out over time, which creates what Ballmer called a "blue bell" in year-over-year comparisons.

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