Ballmer rants and his fortune falls

Microsoft president Steve Ballmer went on an unscripted rant to journalists Thursday causing his personal wealth to shrink by more than $1 billion.

His assertions that stock valuations were "absurd" drove down the price of Microsoft's stock by 5.1 per cent or $4.87 to $91.19. Ballmer is estimated to own in excess of $20 billion in Microsoft stock, according to Forbes magazine.

His comments were also blamed for hitting the prices of most hi tech stocks and consequently the savings of many investors. The Nasdaq Exchange on which most US high tech stocks trade fell 108 points or 3.8 per cent, the fourth largest daily loss on record.

Ballmer - renowned for his bombastic attitude - was making a speech to business editors about the growing importance of the Internet for Microsoft's business. But during the question and answer session that followed he lambasted investors for driving up the price of hi tech stocks in general and Microsoft's in particular.

He said: "There's such an overvaluation of tech stocks it's absurd. I include my own company and others in that category."

He also hit out at journalists for comparing what is happening in Silicon Valley today to the California Gold Rush of 1849.

Ballmer also noted that as many US employees enjoyed remuneration packages that included stock options, high valuations make it harder for employers to hire good people.

For instance if potential employees believe that one company's stock has reached its potential they will go to a company with a lower stock price or lower price/earnings or price/sales ratios.

Microsoft, for example, has a price/earnings ratio of 65, which although is high it is much less than Cisco's at 96, but is way ahead of IBM's at 33. Most of the Internet companies do not have price/earnings ratios because they do not yet have earnings. Rare profitable Internet companies such as AOL and Yahoo have price/earnings ratios of 236 and 347, respectively.

The price/earnings average for stocks in Standard & Poor's 500 index is 31.

Microsoft has a long history of trying to curb investors' enthusiasm for its stock. The company claimed the price was too high when its price/earnings ratio was 45 two years ago.

Analysts believed that Ballmer's remarks hit a nerve Thursday because investors were already jittery because of worries that the hi tech sector would be affected by fallout from the recent Taiwan earthquake.