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How much does MS need to dampen down its stock price?

Steve Ballmer's impromptu remarks could have been helpful - accidentally, of course...

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Microsoft's market value is now bigger than the gross domestic product of all but ten or eleven countries (not bigger than that of Italy, as was erroneously reported by Dow Jones - the Italian GDP is more than twice Microsoft's market cap). But it may well be in the company's interest to keep the share price down - unfortunately, in light of recent events. Steve Ballmer's casual remark during a Q&A after a speech he made to the Society of American Business Editors and Writers Earlier story: String him up! last week may be viewed rather dimly by the Securities and Exchange Commission. If Microsoft bought any shares after Ballmer's comment ("There is such an over-valuation of technology stocks that it is absurd. I would include our stock in that category") and his response to a question as to what he thought the value of Microsoft's stock should be ("less"), then the SEC hard guys may not see it the same way. It does appear that Ballmer was speaking spontaneously in response to a question, but it was a particularly dangerous thing to have done while Microsoft is again being investigated by the SEC. Ballmer's remark (a replay of Ballmer's remarks can be heard here) sent the cost of Microsoft shares down 6.9 per cent, from an opening price of $96.875 to a low of $90.016. Since Microsoft constantly needs to buy back its own shares for stock options, there may be some suspicion that Ballmer's dampening of the share price allowed the repurchase of shares at an advantageous price. There is insufficient information to calculate precisely the value of the so-called employee option share overhang, but it is probably around $60 billion. Another reason why Microsoft would wish to keep down the value of its shares is to make it easier to achieve earnings expectations. CFO Greg Maffei has been making reassuring noises about financial analysts' estimates of 34 cents/share for the current Q1 (ending tomorrow), which would be up 28 per cent on the same quarter last year if this level is achieved. However, there is increasing suspicion that since quarterly results are not externally audited, Microsoft has a wide latitude as to the what figures it declares. ®

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