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Fri, May 26, 2006 - Page 10 News List

Microsoft plans to boost acquisitions

STILL SPENDINGDespite calls from investors to return more profit to shareholders, the firm plans to continue to make acquisitions in an effort to fend off rivals such as Google

BLOOMBERG

Microsoft Corp, which bought 22 companies for about US$750 million in the past year, is planning more purchases and “long-term” investments to fuel growth, chief executive officer Steve Ballmer said.

“You ought to expect us to continue to do more acquisitions, but still primarily, small-and mid-sized companies,” Ballmer, 50, said during a press conference in Seoul. “Our pace of acquisitions continues to rise.”

Ballmer, who also announced plans to spend US$60 million in South Korea in the next three years, declined to comment on Microsoft’s budget for buying companies and didn’t name any purchase targets.

Ballmer is counting on investments to help Microsoft fend off rivals such as Google Inc even as some investors have asked the company to instead return more profit directly to shareholders.

Microsoft shares plunged 11 percent, their biggest drop in more than five years, on April 28, a day after the company said it would increase spending on its Internet unit to stem customer defections to Google. The plan called for spending US$2 billion more than some expected, prompting at least five analysts to cut their ratings on the stock.

“We are going to continue to make the kind of long-term investments that drive long-term innovation and growth,” Ballmer said yesterday. “Shareholders, I think, have appreciated the fact that we are able to grow our profits. We’ll continue to do so.”

Ballmer’s comments may not sooth investors who want the company to spend more of its money on buying back shares. Joseph Rosenberg, chief investment strategist at New York-based Loews Corp, has criticized Ballmer for not buying back enough shares to bolster the stock price and earnings per share.

Rosenberg said he told Microsoft officials the company should buy back US$60 billion in shares, half with cash and half with debt.

Richard Pzena of Pzena Investment Management LLC, which holds 14.3 million Microsoft shares, said he is seeking a meeting with Chief Financial Officer Chris Liddell to persuade him to buy back between US$30 billion and US$60 billion in stock.

Microsoft is nearing the end of a US$30 billion share buyback announced in 2004 and Ballmer is spending in areas to help compete against Google, owner of the world’s most-used search engine.

In 2004, Ballmer agreed to return a record amount to investors, buying US$30 billion of shares over four years and paying a US$32.6 billion dividend. While he accelerated the timetable, Ballmer is focusing on new projects.

Separately, Ballmer said Microsoft is “on track” for the scheduled general release of Windows Vista in January.

The company will look at customer feedback on test versions of the software, he said yesterday.

“The most important thing is to get quality right,” Ballmer said.

The release date could be moved by “a few weeks,” Ballmer said at a press conference in Tokyo on Wednesday.

Just weeks after Microsoft’s March announcement that it would need to delay the retail availability that had been planned for this year, analysts such as market research firm Gartner Inc and Rick Sherlund at Goldman, Sachs & Co expressed concern Vista will slip further into next year.

Windows is Microsoft’s biggest and most profitable product and the two-year delay in Vista has eroded sales growth.

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