Ballmer to Wall Street: Back off

Microsoft CEO Steve Ballmer thinks Wall Street analysts should back off.

The $2.4 billion his company earmarked for research and development in 2006 will be money well spent, Ballmer wrote in a company-wide memo obtained by

The memo came a day after Microsoft announced earnings that were shy of analysts’ estimates.

Quarterly sales rose 13 percent over the same quarter last year to $10.9 billion, but analysts were looking for revenues of $11.04 billion.

“Throughout our history, Microsoft has won by making big, bold bets,” Ballmer wrote, “I believe that now is not the time to scale back the scope of our ambition or the scale of our investment.”

Some analysts want Microsoft to mature into a value holding for investors, even going so far as to shave $32 billion off of the company’s market capitalization.

But Ballmer won’t hear of it.

“Today we are poised to take an even bigger piece of an increasing number of ever expanding markets” he wrote. “From the server to the desktop to mobile, we sit in a unique position thanks to our willingness to make the big bold bets.”

Analysts for SG Cowen received Microsoft’s spending pledge well, noting that the questions are now about whether Microsoft will spend money in the same places rival Google has invested, such as dark fiber, data center space and engineers.

“We’d contend that Microsoft’s incremental spending will likely be more diverse,” analysts for the company wrote in a report.

“In our view, it is highly probable that Microsoft will generate higher returns on invested capital as a result of its new investment initiatives than by holding an extra 2.5 billion in treasuries.”

Ballmer also acknowledged that Google may present the biggest challenge his company faces in returning to the growth of its younger years.

Advertising revenues were up 30 percent across the Internet last year and Google dominates that field.

Ballmer said Microsoft’s Live service for an answer to Google.

“It is essential that we lead the industry through the critical paradigm shift from software to software-based Internet services,” he wrote.

“Our goal is to create the Web’s largest advertising network, giving us an engine that will enable us to monetize our services and compete against Google.”

This bold approach is already paying off:’s search properties, Alexa and A9, started running Microsoft’s new Windows Live search engine instead of Google’s after their contract expired.

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