Microsoft Taps War Chest

Among the doom and gloom of layoffs and cost reductions plaguing the tech sector, Microsoft seized a giant marketing opportunity, announcing plans to pour $5.2 billion in research and development, an increase of 20 percent, and grow employee headcount by 10 percent this year. The news, which was publicized last week at Microsoft's annual meeting, lifted the software giant's shares by nearly 6 percent and brought cheers from industry watchers. This increased spending comes on the heels of solid earnings; Microsoft posted $7.25 billion in revenues for Q4, a 10 percent increase over the previous year. Clearly, it's a critical time for Microsoft as it carves a place in emerging markets such as CRM and Web services, while staying true to its Windows platform and related office applications. "Microsoft is at a point of inflection," says Mike Schiff, vice president of e-business and business intelligence at Current Analysis. "Microsoft has recognized that it has one battlefield, or platform, to play on and so they're trying to shore that up. It's a big maneuver. They're getting aggressive and equipping their troops." The marketing message also plays well to a crowd starved for some good news. "Microsoft is sending a message that future prospects are bright," says Neil MacDonald, vice president and research director at Gartner. As Microsoft tries to shake a predatory image culminating in a lawsuit with the Department of Justice, the announcement seems to be hitting all the right buttons. Says Schiff: "The marketing message is important, if not more important than the short-term evolution of the technology. Now lets see how fast they hire in the year." Keeping things in perspective, MacDonald, is quick to point out that Microsoft is tapping a giant war chest -- nearly $40 billion in cash reserves. The decision to increase headcount and research and development "is a drop in the bucket," he says. Tom Kaneshige also writes for Line56.com