TechWeek: Microsoft Muddies the Waters

Be careful what you wish for. You might get it.

Microsoft(MSFT) CEO Steve Ballmer wanted Wall Street to ratchet down its revenue expectations for Vista, the new version of Windows. So in an unusual midquarter analyst meeting Thursday, he told investors that some projections for the operating system were "overly aggressive."

Wall Street took his comments to heart and promptly knocked more than 2% off the value of Microsoft's shares (and a cool $7 billion in market cap), the biggest one-day drop in about nine months.

Scott Kessler, head of technology-sector equity research at Standard & Poor's, says "investors were leaning the wrong way. Some were thinking that the company wouldn't call an analyst meeting unless it had good news."

True enough. But other investors feared that Microsoft was going to say that operating expenses for fiscal 2008 were going to soar. Mister Softee shocked investors last July when it announced that spending in fiscal 2007 would increase by a staggering $2.7 billion, largely in pursuit of Internet-related business.

That didn't happen on Thursday. Instead, Ballmer said growth in operating expenses will slow in 2008, but not dramatically.

It's important to note that Microsoft didn't modify its existing guidance for the March quarter and won't give guidance for fiscal 2008 until the April earnings call.