Ballmer helps trigger stock drop

SEATTLE -- Microsoft Corp. shares tumbled five percent Thursday after President Steve Ballmer said technology stocks -- including Microsoft's -- were overvalued.

The technology heavy Nasdaq composite index suffered its fourth largest point decline ever, losing 108.33 points, or 3.79 percent, to end at 2749.83.

Because Nasdaq is weighted to reflect the capitalization of the stocks in the index, a small number of companies have a very large effect on the performance of the composite. Those companies include Microsoft (Nasdaq:MSFT), which has the largest capitalization of any company in the U.S. and therefore has the largest impact on Nasdaq.

The Dow Jones Industrial Average, which tracks widely-held issues, lost 205.48 points to end at 10318.59 for a second consecutive day of heavy losses.

'There is such an overvaluation of technology stocks, it is absurd.' -- Microsoft President Steve Ballmer

"There is such an overvaluation of technology stocks, it is absurd," Ballmer said to a group of journalists at a conference of the Society of American Business Editors and Writers. "I could put our own company and others in that category."

He later added, "I used to believe in the theory of perfect markets, but I no longer believe that."

What about a tracking stock?
Meanwhile about a mile away at its own news conference, Microsoft unveiled a set of Internet initiatives that included spinning off its online travel services, Expedia, and that move largely disappointed investors who'd been looking for the company to issue a tracking stock of all its Internet assets.

"It's all about expectations, and this is certainly a step back from doing an entire tracking stock," said analyst Lise Buyer of Credit Suisse First Boston.

The two moves helped send Microsoft shares down $4.88 to end trading at $91.19 on the Nasdaq market system.

Market watchers and Microsoft analysts stopped short of saying Ballmer's comments were the only factor for the market's misery. Indeed, Microsoft has a history of playing down its stock price after several of its top executives left the company, cashed in lucrative stock packages and became multimillionaires.

"Today we were beginning to see some damage in the market leaders and a lot of those are tech," said Gary Anderson, of Oregon-based money management firm, Anderson & Loe.

He cited oil and oil services companies as another group that has represented an area of relative strength for the market but showed some signs of weakening Thursday.

The Dow Jones Industrial index also dropped below a key technical support of 10,500, and the Standard & Poor's 500 index fell under support at 1300, closing down 30.11 at 1280.40. Traders often sell stocks when widely watched indices like the Dow Jones and S&P break support levels.

At the Microsoft news conference, Ballmer said the idea of a tracking stock, which was floated over the summer and would have reflected the overall value of the company's Internet operations, was rejected because it had little to do with business strategy.

"That's a financial engineer's transaction, and we're not financial engineers," he said, adding, "We're here to run a business."

New Net strategy
Expedia, an online travel agency that offers airline tickets, car and hotel reservations and other services, was founded in 1994, has about $38.7 million in net revenue in the year ending June 30 and posted $19.6 million in net losses in the same period, according to documents filed with the U.S. Securities and Exchange Commission.

The bulk of the company's revenue comes from commissions, advertisements, and licensing fees.

Microsoft will retain a majority stake in Expedia, which currently employs 128 people, according to the SEC filing. It is run by Richard Barton who founded the concern and now serves as the company's president and chief executive officer. He has been with Microsoft since 1991.

Ballmer said Microsoft also was considering offering public shares of its CarPoint auto-buying service, which this week announced an arrangement under which Ford Motor Corp. will take a minority stake.

Brad Chase, a Microsoft senior vice president, said the IPO was just one solution for getting the full value out of it's huge investment in its money-losing Internet operations.

As part of the new focus on Internet assets, Chase said the Redmond, Wash.-based giant would offer many of its components, such as its new instant-messaging software, to partners on a private label basis, as it does with its Internet Explorer.

Microsoft executives also said they planned to relaunch the MSN.com Web portal site in November with a new interface and new features including an emphasis on shopping.