Microsoft aims to save $1 billion this fiscal year

Microsoft plans to save nearly $1 billion through efficiency improvements and cost-cutting in its 2005 fiscal year, Microsoft CEO Steve Ballmer said in his annual strategy e-mail message to employees last week. The company's new fiscal year started July 1.

Over the past three years, expenses at Microsoft have grown faster than revenue. "This is obviously not a trend we can continue," Ballmer wrote. The company's plan to save money includes better-coordinated marketing, which should save hundreds of millions of dollars, according to Ballmer. Microsoft's total operating expenses for the year ended June 30, 2003, were $18.97 billion, up from $16.46 billion the previous year.

Ballmer noted, however, that Microsoft's cost per employee, including benefits and salary, will rise by 6%.

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Microsoft plans to save nearly $1 billion through efficiency improvements and cost-cutting in its 2005 fiscal year, Microsoft CEO Steve Ballmer said in his annual strategy e-mail message to employees last week. The company's new fiscal year started July 1.

Over the past three years, expenses at Microsoft have grown faster than revenue. "This is obviously not a trend we can continue," Ballmer wrote. The company's plan to save money includes better-coordinated marketing, which should save hundreds of millions of dollars, according to Ballmer. Microsoft's total operating expenses for the year ended June 30, 2003, were $18.97 billion, up from $16.46 billion the previous year.

Ballmer noted, however, that Microsoft's cost per employee, including benefits and salary, will rise by 6%.

Efforts to reduce costs also have hit Microsoft employees. The software maker has scaled back employee benefits. But salaries will go up consistent with inflation, and superior performers will receive bigger raises, he wrote.

"Other companies have been severe in tightening costs in the last few years - layoffs, major benefit reductions, etc. We have not done these things and want to be prudent now so we avoid severe measures later," Ballmer wrote.

One of the changes in employee benefits is reduced coverage for prescription medicines, a Microsoft spokesman said. Employees now have to pay part of the cost of brand-name drugs if a generic alternative is available, he said.

Microsoft has to overcome its "big company ills" with a "strong focus on accountability for results with customers and shareholders," Ballmer wrote. He called upon employees to set clear and measurable goals and deliver on those commitments.

Ballmer's e-mail message reflects the overall state of the company, says Rob Enderle, president of Enderle Group.

"Microsoft is buttoning down for what undoubtedly will be a period of tough growth, and Steve is getting the troops ready for the belt-tightening to come," Enderle says. "They clearly are concentrating more and more on margins and are setting some aggressive targets."

In the e-mail message, Ballmer also laid out focus areas for the company. The list contains no surprises and includes all of Microsoft's current product groups. The key to growth is innovation, Ballmer wrote.

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