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Originally published June 29, 2008 at 12:00 AM | Page modified June 29, 2008 at 12:34 AM

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Microsoft stock "volatile" not flat, Ballmer says

Despite annual revenue and profit growth that would be the envy of companies a fraction of its size, Microsoft's stock has been generally flat for most of the past decade.

Seattle Times technology reporter

Despite annual revenue and profit growth that would be the envy of companies a fraction of its size, Microsoft's stock has been generally flat for most of the past decade.

Steve Ballmer, Microsoft's chief executive for most of that decade, would use the word "volatile."

Asked whether investors are missing the bigger picture of Microsoft as they focus on the company's online services business, Ballmer was nonplussed.

"I can't really comment," he said in an interview with The Seattle Times on June 18. "On any given day, even if we talk to investors all day, every day, you don't actually know why the stock went up and down."

Microsoft closes the books Monday on a fiscal year with expected sales of $60.3 billion, up 18 percent, and earnings per share of $1.88, up 26 percent. Even with that kind of bottom-line performance, the company's shares have had very little oomph.

In the months since Microsoft made a public bid for Yahoo to speed the growth of its online business, the company's shares have tumbled. Last fall, as Microsoft's fiscal year got off to a roaring start, the stock climbed into the high $30s.

During the interview, Ballmer grabbed a staff member's laptop to explain the context in which he views Microsoft's stock.

He went to MSN Money and pulled up 10-year charts comparing Microsoft with GE, "a big market-cap stock"; Hewlett-Packard, "they've done pretty well"; Cisco, "somebody else who was a real company back then"; and Intel, "they're sort of a metronome of our business."

He didn't compare Microsoft with Apple or Google, "because they've really exploded in the last few years."

"You can see everybody's been kind of highly volatile," Ballmer said. (We've re-created Ballmer's comparisons in the chart above. Microsoft's shares, just barely in positive territory for the 10-year period, were outperformed by everyone except GE.)

"... We're a little bit on the low side, and most of that we've given away basically since we made a bid for Yahoo," Ballmer said with a laugh. "So, I don't know, it could be a short-term perturbation.

"What's the expression? In the short term, the stock market is a voting machine, and it's only in the long run that it's a weighing machine. So, at any point in time, it's hard to tell. We're closer to the market than farther away is my big point over the last 10 years. The market has been interesting over the last 10 years," he continued.

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"We could do better, there's no question, but our earnings, if we plotted earnings, and earnings relative to capital invested, we've definitely outperformed."

Ballmer said Microsoft's business comes with greater risk than "more traditional businesses."

"In the last 10 years we've seen the rise of open-source software, a competitor without a cost structure," he said. "We've seen the rise of advertising as a business model where we're proving whether we've got the chops. So, yeah, it's worth investors asking, you know, even if you've got a great growth rate, we have a little more risk, so that probably hits the [price-earnings ratio] a little bit."

That ratio, as calculated recently by Goldman Sachs, was 14.8 compared with a median of 22 for a group of PC software and enterprise applications companies.

Benjamin J. Romano: 206-464-2149 or bromano@seattletimes.com

Copyright © 2008 The Seattle Times Company

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