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Microsoft to splurge on staff, research

Bucking the trends * Microsoft plans to increase spending on new software and hardware technologies from US$4.3 billion in 2002 to US$5.2 billion in 2003. * The company, which presently employs 50,000 people, anticipates hiring as many as 5,000 more in 2003. * The company also plans to become less reliant on programming languages and more reliant on the Extensible Markup Language, or XML software data format.

Shrugging off a deep technology industry recession that has beset its competitors, Microsoft said on Thursday that it planned to accelerate its investment in research and development and increase its workforce.

Speaking at a daylong meeting for financial analysts, Bill Gates, the company's chairman and chief software architect, said that Microsoft would increase its investment in new software and hardware technologies by almost 20 percent in fiscal 2003, raising its spending from US$4.3 billion to US$5.2 billion. At the same time, the company plans to increase the rate of its hiring, adding as many as 5,000 workers to its workforce of 50,000.

"We have a lot of belief in the things we're doing, both in terms of growing the markets we're in and growing share in the markets we're in," Gates said.

The company is now stronger than all its competitors in its key markets, he added, with the exception of IBM's Global Services division and the Linux operating system

"IBM in Global Services has a strong asset and they've managed to get Websphere out," he said, referring to the company's foray in the Web-based services market. Microsoft is trying to become a player in the corporate computing market with it's .Net (pronounced dot-net) initiative, however industry analyst's said it is trailing IBM, which has giant reach in the corporate marketplace and has adopted the Linux operating system.

On Thursday, Gates, who on Wednesday outlined the company's strategic direction at a similar event for industry analysts, repeated the company's mantra about the importance of a software data format protocol known as XML, or extensible markup language. Microsoft is in the process of redesigning all of its products to embed the format.

Moreover, in a significant departure from the company's historical reliance on its programming languages to tie software developers to its Windows operating system, Gates said that the company along with the computer industry has come to realize that programming languages no longer matter as much as the XML format.

Shares of Microsoft fell US$3.40 to US$42.83 on Thursday. The stock had touched a 12-month low earlier in the week.

Microsoft's chief financial officer, John Connors, sketched out the new financial reporting breakdown the company plans on giving its investors beginning in the September quarter. It will for the first time break Microsoft's financial results out into seven businesses: desktop OS, knowledge workers, MSN, home and entertainment, mobility software, servers and programming tools, and business applications. "What the company is really going through is a significant diversification and a significant transformation," he said.

During his talk, Gates commented briefly on Microsoft's agreement with the Justice Department in its antitrust case, and its continuing legal entanglement with nine dissenting states.

"We were very pleased to have our settlement with US Justice," he said, adding that with respect to the continuing appeal of the nine states, "We're awaiting the decision and we're hoping it will come out the same as that we settled with the DOJ."

Briefly acknowledging the company's failed investment in the market for interactive television, Gates insisted that the company's business model was fundamentally sound. Commenting on the increasingly contentious issue of stock option accounting in technology firms, he noted, that neither he nor Steven A. Ballmer, the chief executive, who are two of the world's richest men, have ever taken stock options.

"Our interests overwhelmingly are the same interests that are the interests of the shareholders," he said.

The company also said on Thursday that it expects to do better in the market for mobile wireless devices than it has done in the cable business, where its software efforts have been largely ignored.

Although its cellular data phones are just now becoming available commercially, Microsoft now has 31 companies manufacturing portable hardware based on Microsoft's software, and the company has made public announcements with 12 service operators in the cellular phone business.

Microsoft's mobile-phone products have been criticized by industry analysts because of their relatively high cost and short battery life.
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