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Economic downturn not taking the fight out of Microsoft

Ballmer's plan outlines adjustments, signals full-steam ahead

By , Network World
February 26, 2009 07:01 PM ET

Network World - Microsoft this week outlined its intent to stand and fight against a difficult economy with a plan to go after competitors and seize market share in areas like netbooks, mobile devices/services, browsers, databases and even search/advertising.

Microsoft CEO Steve Ballmer earlier this week walked financial analysts through the company's annual mid-fiscal year update on its strategic thinking, striking a bit of a conciliatory tone but making it clear he's organizing to fight.

"You don't beat it. You manage in this environment," Ballmer said. "We need to then really ask the question, what do we invest in, what's important, what's going to happen."

What's going to happen, experts say, is that Microsoft, as always, is going to be on the offensive with its extensive line of products and business interests ranging from Windows to Xbox.

Ballmer speak

"This is Ballmer saying we think our strategy is working and we are not going to change it or the areas of investment," said Matt Rosoff, an analyst with independent research firm Directions on Microsoft. "They look at this as time to expand and take share from companies that are weaker fiscally. Microsoft has cash, they have incredible profit margins, they are doing pretty well."

In the first half of fiscal year 2009, Microsoft posted $31.7 billion of revenue, which was up 5% over the same time period last year, and $11.9 billion in operating income. The company reported in December that it had nearly $20 billion in cash.

"If you look at the numbers, just the raw numbers, it was actually a very good first half," said CFO Chris Liddell, who appeared this week with Ballmer at the financial analysts meeting in New York City.

Ballmer said Microsoft will seek to grow its share in various markets that it has been in for years including mobile and databases and attack new markets like netbooks and entry-level servers.

Some of the company's effort will be to protect market share, as is the case with the upcoming Internet Explorer 8, some will be to gain market share, as in its ongoing battle to steal database customers from Oracle, and some will be a massive uphill battle like search and advertising where Google dominates.

Ballmer announced that Windows 7 would be available on netbooks and said Microsoft is working on a low-cost, low-functionality entry level server called Foundation Edition.

And he said Office 14, slated to ship next year, client access licenses and a new high-end version of SQL Server would be foundations to sell into corporations.

The opposite of gloom

Despite Ballmer's gloomy assessment of current overall economic conditions his words exposed his poker face.

"I tell our people, I don't know why you get grim, even in a down economy we could take share, maybe especially in a down economy it's time to take share," he said.

In addition to growing share and revenue, Ballmer talked about reducing operating costs and being smart with investments. He said Microsoft's "little corporate strategy group" researched annual reports of various companies from 1927 through about 1938 and found that those that invested during down cycles prospered when better times returned.

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