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Friday, July 28, 2006 - Page updated at 12:00 AM

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Microsoft's busy multitasking

Seattle Times technology reporters

When Microsoft announced plans in April to spend billions more than expected on its business, the top Wall Street analyst following the company said, "It sounds like you're building a Google or building a Yahoo! inside the company."

Chief Executive Steve Ballmer told about 300 analysts Thursday that Microsoft is essentially doing just that — and much more.

"There really is a Sony that lives inside of us, and there's an aspiring Yahoo! or Google that lives inside of us, and there's an IBM mainframe-software business that lurks inside of us, and there's a desktop-software business — where we don't have a lot of peers — that lurks inside of us," Ballmer said.

He could have added Apple Computer to that list, as Microsoft also provided more details on Zune, the portable media player it is developing to rival the dominant iPod.

Throughout his presentations to the annual Financial Analyst Meeting in Redmond, Ballmer used the analogy of new "multicore" computer chips, which contain multiple processors, saying Microsoft has to be a multicore business as the information-technology industry evolves.

And he made it clear Microsoft will continue to invest over the long term to grow into areas it doesn't dominate.

"I want Microsoft to be in all of the good, important big-growth businesses in the world," Ballmer said, noting that as much as 90 percent of his personal investment portfolio is in Microsoft. "I'm a long-term investor. I want to create shareholder value for Microsoft investors," Ballmer said.

Working at Microsoft


Microsoft released new headcounts on its Web site.

Global employees

Sept. 30, 2005: 63,564

July 25, 2006: 71,553

Up 12.6 percent

U.S. employees

Sept. 30, 2005: 40,081

July 25, 2006: 44,298

Up 10.5 percent

Puget Sound area

Sept. 30, 2005: 30,255

July 25, 2006: 33,333

Up 10.2 percent

One way is through returning $86 billion to investors in the past five years, with more on the way.

Microsoft's announcement about investments in its business was initially greeted coldly by shareholders looking for more revenue from product launches this fiscal year to end up on the bottom line.

The company's stock plunged 11.4 percent the day after Goldman Sachs analyst Rich Sherlund made the "building a Google" statement.

Ballmer said some people have had a hard time understanding the "multicore" strategy and its implications. "You have to think about the various pieces of Microsoft," he said.

Throughout the day, top company executives detailed investments in an array of technologies, from Internet-delivered television to business intelligence to health care.

"It is precisely because we are multicore that I think we have an opportunity for long-term, exceptional growth," Ballmer said.

Microsoft shares slipped 50 cents, or 2.1 percent, on Thursday to close at $23.87, but they have been up since the latest stock-buyback plan was announced last week.

Microsoft Chief Financial Officer Chris Liddell gave more context to the $20 billion tender offer. The plan, which could take 8 percent of the company's shares off the market when executed Aug. 17, is part of a broader strategy to repurchase shares worth up to $40 billion by 2011.

"It's about five times bigger than any other tender that's been carried out," Liddell said.

One initiative attracting a lot of spending is Zune. The company plans outlays reaching into the hundreds of millions of dollars over the next several years for the media player, Robbie Bach, president of the Microsoft Entertainment and Devices Division, said in his first public words on the project since it was officially confirmed a week ago.

That sounds like a lot, but it's not close to the billions Microsoft spent to develop and produce the Xbox video-game system, Bach said.

The first device in the Zune line will come out in the fall in the U.S., and the company plans to expand to additional countries and debut more devices next year, he said.

Zune, touted by observers as an iPod killer, will have a hard drive and a wireless connection enabling users to share music. But don't expect Microsoft to take the market lead anytime soon, Bach said.

"This not a six-month initiative, and somehow in six months we're going to have captured the marketplace," he said. "This is something that's going to be a three-, four-, five-year investment horizon."

Bach said the Zune player and the software and music service to accompany it are being designed to tie in with other Microsoft products, including the Xbox Live, MSN and Windows Live services, the Xbox 360 console and cable-television software systems.

That's a level of integration and connectivity no other company has yet, he said.

Microsoft is looking to the Xbox Live video-game service as a model in this area, Bach said. He oversaw the development of the original Xbox console and its successor, the Xbox 360.

"That whole community aspect, which is what we do on Xbox Live, absolutely applies in other entertainment spaces as well," Bach said. "So we think community is a fundamental part of what has to happen here and a place where we have real experience."

Ballmer said Microsoft is the only company with the optimism and financial resources to take on the iPod.

"For better or for worse, there's no other company that would be attempting to get into that business at this time," he said.

Microsoft would have started its work on Zune a year ago if it could have, showing that even with 71,553 employees, there are limits to the number of new areas it can enter at once.

"Frankly, we took some of the top folks out of the Xbox 360 effort, and right after 360 shipped that became the Zune team," Ballmer said. "I wish we would have done it earlier. We just didn't have the right talent capacity at the time."

Benjamin J. Romano:206-464-2149 or bromano@seattletimes.com, and Kim Peterson: 206-464-2360 or kpeterson@seattletimes.com.

Copyright © 2006 The Seattle Times Company

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