Microsoft To Boost R&D As Government Pressure Grows

Microsoft plans to increase research and development spending more than 20% this year, investing the largest portion in new user-interface and PC-repair technologies. But as the company aims to advance PC computing--a new test version of its Windows XP operating system shipped last week--government pressure on Microsoft is mounting.

Chairman Bill Gates said at a financial analysts meeting in Redmond, Wash., last week that the vendor plans to spend $5.3 billion on R&D for its 2002 fiscal year, which began July 1, up from the $4.38 billion it spent in fiscal 2001. The increase outpaces Microsoft's projected revenue growth this year. "We're not scaling back our R&D ambition at all," Gates says.

Future versions of Windows and Office--subsequent to this fall's Windows XP release and recently released Office XP--could include update features that let desktop PC users report crashes and other problems to Microsoft. Other aspects of the R&D effort, dubbed "Always Works," could yield new ways to annotate text using large LCD screens and digital pens instead of mice. Gates says it will take two to three releases to introduce all the planned enhancements.

More immediately, Microsoft Group VP Jim Allchin says the company isn't changing its XP release plans. "People are sleeping in their offices as necessary to get this product finished," he says. Microsoft shipped a second release candidate of Windows XP, due Oct. 25. Microsoft and PC makers are counting on XP to rejuvenate a slumping market.

But government opposition to XP's integration with Microsoft's Internet software drew the ire of Sen. Charles Schumer, D-N.Y., last week. Schumer, a Microsoft backer during its anti-trust trial, said he was on the verge of withdrawing his support, citing potential harm to consumers and competitors from XP's favoritism of Microsoft applications. He called on the Justice Department to make open access to competitors' software in XP a condi-tion for settlement of the case, and asked 18 states suing Microsoft to bring a lawsuit enjoining the release of XP until Microsoft makes the changes.