Microsoft boosts R&D spending to $5.3 billion

Microsoft Corp.'s Bill Gates kicked off the company's annual Financial Analysts Day here Thursday by announcing the company will boost R&D spending by 20 percent from US$4.3 billion in FY 02 to $5.2 billion in FY 03.

The planned spending brings Microsoft back in line with previously announced R&D investment levels. In July 2001, Gates announced at Microsoft Research Faculty Summit here that the company would spend $5.3 billion on R&D over the coming year in 2002.

Despite the tough economy, Gates said the investment reflects his optimism in the "second wave" of products on Microsoft's horizon, which include Longhorn, Yukon, and future releases of Office, Visual Studio, Exchange, and MSN.

Although Gates did not commit to time frames, Microsoft's initiatives in the database arena will feature prominently in future R&D spending, such as building a unified data store around Yukon. "The center piece here is the storage engine that will be integrated in the third wave [and] is being pioneered in SQL Server," Gates said.

Echoing Gates' optimism, Jim Allchin, group vice president of platforms, said in a speech following Gates' that sales of Windows XP have driven financial growth, particularly as a result of volume licensing. While industry PC growth is down 4 percent this year, Microsoft is up 16 percent in client revenue. "I don't know of a time when more copies of Windows were shipping," Allchin said.

Meanwhile, Gates outlined his long-term focus, noting that Microsoft is doing "a lot of risk taking" in terms of incubating new ideas across different product groups.

An illustration of this risk is interactive TV, Gates mused. "Ten years ago I said it was important; 10 years later, what do I say, it's important," he said, admitting with a smile that the "profits" to come from the spending was "a big negative number."

In terms of competitors, Gates identified IBM and the "Linux-type software community" as being at the top of the list. IBM Global Services in particular is a good long-term competitor, he said.

Gates also used the speech to weigh in on the troubles facing corporate America, using himself and CEO Steve Ballmer as examples of a model where decisions are made by leaders who are part owners in the business.

"The vast majority of our network worth is in this business," he said. "We never have taken options and we never will take options."

As for the transition to becoming chief software architect, Gates showed off examples of his calendar, contrasting the drop off in appointments between when he was CEO and now. The change has given him more time to spend focused on product development, he said.

"I'm enjoying being in this new role a lot, and it's fairly critical in terms of how we put things together in terms of .Net," Gates said.

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