Microsoft Corp shares had their biggest drop in more than five years after the world's largest software maker said it will increase spending on its Internet unit to stem customer defections to Google Inc.
The stock tumbled 11 percent on the most volume ever for Microsoft, erasing US$31.6 billion in market value. At least five analysts, including Morgan Stanley's Mary Meeker, cut their ratings after the forecast, issued yesterday with the Redmond, Washington-based company's third-quarter earnings.
The spending surprised analysts, who said chief executive officer Steve Ballmer may be investing too much at the expense of profit. Ballmer's decision to pour money into his MSN Internet unit will probably lead to an 18 percent increase in costs, to US$22.3 billion next year, said Goldman, Sachs & Co's Rick Sherlund. Sales may rise 14 percent over the same period.
Profit will be US$1.36 to US$1.41 a share in the year beginning July 1, missing the US$1.53 average of 30 analysts' estimates in a Thomson Financial survey.
In the fourth quarter, profit will be US$0.30 a share on sales of US$11.5 billion to US$11.7 billion, Microsoft said. Analysts surveyed by Thomson on average expected US$0.34 in profit.
Microsoft fell US$3.10 to US$24.15 at 4pm New York time in NASDAQ Stock Market composite trading, the biggest decline since November 2000, when the shares sank on investor concerns over weak holiday sales of personal computers. Volume of 591 million shares was the most ever and nine times Microsoft's daily average over the past year. A trade as low as US$23.60 was canceled.
The stock, which trailed the Standard & Poor's 500 Index the past three years, has lost 7.6 percent this year.
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