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Shares of Microsoft fell 1.7% to $28.95 in after-hours trading on volume of nearly 12 million shares, following CEO Steve Ballmer's warning to analysts that some of their forecasts for Vista revenues were "overly aggressive." Ballmer adds, "You shouldn't think of a huge surge in fiscal year '08 relative to '07. There's a few that think we are going to do so much better than PC growth." Microsoft-MSFT-1yr-chart-02-15-07 Likewise, operating expenses are seen coming in lower-than-expected, under the $2.7 billion increase from last fiscal year. Regarding competition with Internet search leader Google, Ballmer commented, "We still have a lot more work to do, both on the R&D side and the sales and marketing side. I wouldn't be frustrated. I'd be excited by the opportunities for improvement." Ballmer said Microsoft could boost spending for Internet services and he said the company still plans to use its cash for stock repurchases. T. Rowe Price analyst Ken Allen seemed unmoved by Ballmer's Vista-related comments, noting Microsoft has typically issued conservative guidance.

Sources: Microsoft Strategic Update: transcript [.doc] and presentation [.ppt], Bloomberg
Commentary: Microsoft's Ballmer: We're Wiffing On VistaBest Buy: Sales of Vista-Based PCs Top ExpectationsPC Sales Jump on Demand for Vista
Stocks/ETFs to watch: Microsoft (NASDAQ:MSFT). ETFs: Software HOLDRs (NYSE:SWH), iShares Goldman Sachs Software Index (NYSEARCA:IGV), Technology Select Sector SPDR (NYSEARCA:XLK)

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Source: Ballmer Says Some Analysts' Vista Estimates 'Overly Aggressive' -- Street Reacts