Feb. 16 (Bloomberg) -- Microsoft Corp. shares fell 2.4 percent, the most in more than 9 months, after Chief Executive Officer Steve Ballmer signaled sales of the new Windows Vista programs are unlikely to meet some analysts' highest estimates.

``Some of the Windows revenue forecasts I've seen are overly aggressive,'' Ballmer told analysts in New York yesterday. ``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.''

Investors expect Vista to propel sales at the world's biggest software maker for the next 18 months. The estimates have varied since the program's wide release Jan. 30, and Ballmer's comments left analysts confused as to whether their own expectations are out of line. The Windows unit is Redmond, Washington-based Microsoft's biggest money maker.

Microsoft shares fell 72 cents to $28.74 at 4 p.m. in Nasdaq Stock Market trading, the steepest slide since May 3. They had gained 9.6 percent in the past year before today.

``I've already heard from clients and they're concerned about the Vista growth assumption,'' said Brendan Barnicle, an analyst at Pacific Crest Securities in Portland, Oregon, who rates Microsoft shares ``sector perform.'' ``It doesn't sound like Ballmer's speech went well.''

Estimate Confusion

Heather Bellini, an analyst at UBS AG in New York, cut her estimate for Windows revenue by $203 million today to reflect a growth rate of 13 percent, rather than the 15 percent she had previously expected.

Merrill Lynch & Co. analyst Kash Rangan in San Francisco said Ballmer seemed to suggest 8 percent to 9 percent growth in sales of Windows for personal computers in the year that starts in July, excluding an accounting change. Rangan put the average analyst estimate at 12 percent.

The projections are complicated because Microsoft is switching how it recognizes some revenue, which will boost Windows sales next year by about $600 million according to Bellini. Rangan estimated 7 percent growth excluding the change. Goldman Sachs Group Inc. analyst Rick Sherlund estimated 10 percent excluding it. Charles Di Bona at Sanford C. Bernstein & Co. includes the change and projects a 14 percent increase. Bellini's 13 percent estimate includes the change as well.

Big Change?

Ken Allen, an analyst at T. Rowe Price Associates Inc., said Ballmer typically gives conservative forecasts and that he was probably ruling out only the highest expectations.

``At the end of the day, I don't think it's a major variance from what the market expected and in line with what I would have expected,'' Allen said. Baltimore-based T. Rowe Price is the seventh-biggest institutional holder of Microsoft shares.

Vista marks Microsoft's first new PC operating system in five years. Ballmer said many corporate customers have already paid for upgrades through multiyear licenses, and there will be more consumer upgrades in the current year than in fiscal 2008.

Additionally much of the growth in PC sales worldwide takes place in countries with high software piracy rates, he said.

Ballmer forecast a smaller rise in costs in coming months. There will be a ``small drop'' in the growth in operating expenses in the year that starts July 1, after an unexpected $2.7 billion increase in the budget this period, he said.

Battling Google

The spending in part will help fight Google Inc., raising concern with some investors that Microsoft will be hurting profit with little to show for it. Google continues to dominate in winning money from Web advertising, and Microsoft still is losing market share two years after releasing its own search engine.

Ballmer reiterated that the company may still boost expenses further to help its Internet services compete with search market leader Google.

The extra money last year went to expand Microsoft's Internet services, market the new Windows Vista and develop security software.

Microsoft spent $450 million to release Vista and Office 2007, and that won't be needed next year, letting the company spend more on Web efforts without boosting overall expenses, said Bellini, the top software analyst by Institutional Investor magazine.

Ballmer said yesterday that the new fiscal 2008 spending would include money to add customers for the Internet businesses.

No Bomb

Microsoft continues to ``look for cost-effective ways to increase customer acquisition, and we may come back to you at some point in the year and say we may increase'' spending in that area, he said.

The shares had dropped 4.5 percent this month before yesterday on concern that another spending increase was coming.

``We didn't get the big bomb on expenses that people were worried about,'' Di Bona said. ``We got a little bit of caution on people's Vista numbers, which doesn't look to me like it will be that meaningful.''

Investors may still get an unpleasant surprise in April, when Microsoft gives its first official forecast for profit and sales next year, Bellini said. Ballmer yesterday didn't answer her question as to whether cost of goods sold in the Xbox unit will rise, sparking an overall increase in such expenses.

Several analysts have it declining, which Bellini said Ballmer indicated to her in a private meeting is unlikely. That would mean that the $9.9 billion average estimate for cost of goods sold is too low, and so come April, Microsoft may say profit margins will be below what some analysts expect, she said.

``Consensus has to change on cost of goods sold,'' she said. ``That's still a potential overhang for April.''

To contact the reporter on this story: Dina Bass in Seattle at dbass2@bloomberg.net

Last Updated: February 16, 2007 16:26 EST