Ballmer`s web spending leaves investors cold

After walking away from six months of on-again, off-again talks about buying all or part of Yahoo! Inc., owner of the No. 2 Web search engine, Ballmer has left shareholders wondering if he has a plan B.

Microsoft, the biggest software maker, has lost about $90 billion in market value this year as Ballmer vacillated on Yahoo and failed to show how he would crack Google Inc's dominance of Internet advertising. Shareholders will look for ideas at a meeting with Ballmer tomorrow, said Kim Caughey, a Fort Pitt Capital Group Inc. analyst in Pittsburgh.

"I'm a little concerned; I'll be honest," said Caughey, whose firm manages $1.2 billion and owns Microsoft shares. Ballmer needs to "put a hot, bright light of clarity on where's all the money going".

Ballmer, along with Chief Financial Officer Chris Liddell and the presidents of Microsoft's three businesses, will address analysts and investors tomorrow at company headquarters in Redmond, Washington. Spokesman Frank Shaw declined to comment because the information is scheduled for release at the meeting.

Drag on Earnings: The company has spent about $9 billion in the past 2 1/2 years building its Internet business, according to Directions on Microsoft, a research firm in Kirkland, Washington. Microsoft doesn't provide figures.

Liddell said on a conference call after last week's earnings release that spending on the online business, which includes the MSN Web site and Live search engine, will rise by "several hundreds of millions of dollars'' in the fiscal year that began July 1.

The online business is in a "period of significant investment" and will "be a drag on an otherwise exceptionally good performance" this year, Liddell said on the July 17 call. Net income rose 42 per cent last quarter to $4.3 billion on an 18 per cent sales increase.

Microsoft also lowered its full-year earnings forecast. The stock sank 6 per cent the next day. It rose 16 cents to $25.80 in Nasdaq Stock Market trading yesterday, and is down 28 per cent this year.

The online division is Microsoft's smallest with $3.21 billion in sales last year, or 5 per cent of the total of $60.4 billion. The business lost $1.23 billion last year, double the previous year's loss, as it hired more people, built computer data centres, and made acquisitions including $6 billion spent on Seattle-based ad company AQuantive Inc.