Microsoft Plans Big R&D And Hiring Push

Vendor is willing to sacrifice quick profits for future growth.
Microsoft plans to spend aggressively this fiscal year on research and product development to build future franchises while sacrificing some immediate profits, executives said last week.

At a meeting with Wall Street analysts in Redmond, Wash., chairman Bill Gates said the company plans to boost R&D spending this year by about 20%, to $5.2 billion. Microsoft also plans to hire 5,000 workers to complement its staff of 50,000. Also last week, the vendor delivered the first release candidate of Windows .Net Server, indicating that the operating system is nearly ready for general use.

Despite falling hardware shipments, sales of desktop apps and Windows server software increased 9% and 13%, respectively, in Microsoft's recently completed fourth quarter, which ended June 30. But some of those sales may be a response to the vendor's new licensing program (see story, above). "There are a lot of people buying under the old program before the changes take effect," says Susan Taylor, VP of marketing at Amherst Corporate Computer Sales & Solutions, a value-added reseller in Merrimack, N.H. Taylor says she's concerned about August and September, after the new plan kicks in.

Microsoft itself says it expects revenue to decline from $7.25 billion in the recently completed fourth quarter to between $7 and $7.1 billion in the next. CFO John Connors projects Windows and Office, the company's most profitable franchises, will experience modest growth this year.

To supercharge those businesses, Gates says, Microsoft is designing a future version of Windows, code-named Longhorn and due later this decade. Gates says he spends about half his time at work with developers on the new program. Client and server versions of Longhorn will use as their file systems database technology slated for inclusion in the next version of SQL Server to tag documents with XML metadata, letting users quickly re-organize files in different groups by content. Gates says it's part of a plan to develop "one architecture for all our products."