Steve Ballmer has heard an earful from Wall Street lately about explaining rampant spending and buying back more stock. But Microsoft's CEO gave little ground at an investors' conference in New York this week.Ballmer put a price tag on new operating expenses for the fiscal year that starts July 1: an increase of $2.6 billion. Wall Street has balked at the spending, sending Microsoft's stock price down. But Ballmer said the increase is needed to compete with Google and other Internet companies and to keep Windows and other flagship products fresh. "While we want to be first, absolutely first in everything that we do, if we're not first we are prepared to come second and still out-innovate the No. 1 guy," he said. "We have done that a few times before." Ballmer told participants at the Sanford C. Bernstein conference to take a "long-term view."

Microsoft's Internet business is taking hits at the moment. A new report showed Google accounting for half of all Web searches for the first time in April, while Microsoft's share dipped to 11%. Then the New York Post reported that Microsoft's talks with eBay about an acquisition of the auctioneer have cooled off. Two weeks ago, eBay signed a big Internet advertising deal with Yahoo, as Microsoft switched MSN, a large conduit for Yahoo's ads, to its own ad engine.

Investors didn't get much succor on the issue of a share buyback, either. Microsoft has returned $87 billion to shareholders since 2001 in buybacks and dividends and still has $6 billion to go on a 2004 repurchase. But some are calling for an increase to $100 billion. Ballmer said only that Microsoft's $34.8 billion in cash "belongs to investors," whether it's kept in the company, paid in dividends, or used to buy stock. "We are not going to screw around with that," he said.