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Microsoft Poised To Lose More Money Online

  • Reuters, Friday, July 25, 2008 10:48 AM
On Microsoft investor day, CEO Steve Ballmer declared that the company was finally "done" with pursuing Yahoo, at least, for now. "There's nothing under discussion between the two of us," Ballmer said. "We had a set of principles, we talked about them, it didn't work out. Fine, we're done. We can move on."

So, moving right along, Microsoft's message to analysts and shareholders was that it has a post-Yahoo plan to turn around its online services division and compete with Google, the online sector's runaway leader. "There is this huge, huge, huge new opportunity around the Internet and online and we have to embrace that opportunity and invest in that opportunity," Ballmer said. His address came a day after the company announced its latest reorganization, precipitated by the departure of online services president Kevin Johnson for Juniper Networks.

Meanwhile, Microsoft shares have fallen 8% since the company issued second quarter earnings last week and revealed that it would spend an additional $500 million on its online unit. Of course, Ballmer didn't explain how the investment would be used. "It's spending $500 million dollars and then it says we'll tell you later how we'll spend it," said Charles Di Bona, software research analyst at Sanford C. Bernstein. Ballmer said the software giant was willing to endure losses of between 5 and 10% of the company's total operating income until its online ad businesses reach "scale." Microsoft's online division has posted eight straight quarters of losses, losing $1.23 billion in the past fiscal year, or about 5.5% of Microsoft's total operating income.

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