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MICROSOFT TO INCREASE R&D BUDGET

Microsoft Corp. will add as many as 5,000 jobs and increase research and development spending by as much as 8 percent in the current fiscal year, the world's top software maker said.

At the same time, Microsoft's management laid out plans at the company's annual meeting with analysts to give more financial control to its individual business units, a step that analysts said was a further recognition of the company's dominance of a mature market for operating software.

Even so, Microsoft Chairman Bill Gates, who handed the Chief Executive post to Steve Ballmer 3-1/2 years ago to assume more control over software design and development, painted a characteristically rosy view of the future.

"We're at the beginning of what we can do with software," Gates told an analyst and media audience of about 300.

Gates said the company he co-founded would continue to boost spending to invest in future technology and pour as much as $6.9 billion on R&D during its current fiscal year to June 2004. He said it would also continue to hire new staff, adding between 3,000 and 3,500 new jobs in the United States. The company already has more than 50,000 employees worldwide.

Microsoft said it would give its divisions more control over their financial management. Chief financial officers were introduced at the meeting, who will oversee the finances of each segment, all of whom will report to John Connors, Microsoft's top CFO.

Analysts say Microsoft's recent decision to compensate employees with shares in the company instead of stock options, the issuance of its first-ever dividend earlier this year and the financial management overhaul are all signs the company is maturing into an enterprise similar in scope and structure to General Electric Co. GE.N and long-time rival International Business Machines Corp. IBM.N

Rob Helm, analyst at independent researcher Directions on Microsoft, said that this year's presentation was more low-key than some in the recent past.

"I think they are not only growing up as a business but also as a technology provider," Helm said.

Instead of wowing the attending analysts with a string of flashy demos of software in development, Microsoft stressed its efforts to improve the stability and security of its software, provide better updates and bring the proliferation of spam, or unsolicited e-mail, under control.

"This year they talked about security and software management, unsexy things that make people mad about their software," Helm said, "I think even Bill tempered himself."

CAUTIOUS OUTLOOK

"There's plenty of work that needs to be done, and we're investing, uniquely, in this industry," Ballmer said.

Despite earning $10 billion on revenue of $32 billion in the year that ended in June, which helped boost Microsoft's cash hoard to $49 billion, Ballmer cautioned that fiscal 2003 was an exceptional year whose growth would be difficult to repeat in the future.

Last week, Microsoft raised its revenue forecast for fiscal 2004 by about $1 billion, despite a cautious outlook for technology spending. The company also said it had no immediate plans to spend any of its $49 billion in cash on major acquisitions or an increase in its dividend.

Microsoft, which will take a charge for future stock awards and also expense stock options granted in the past, said its R&D estimate for fiscal 2004 also included equity compensation expenses.

Despite the focus on financial management and improving customer satisfaction, Microsoft did provide details about incremental developments for Windows, the desktop operating system running on more than 95 percent of the world's personal computers.

Jim Allchin, the group vice president in charge of Microsoft's Windows and operating systems business, said that shipments of Windows XP, the latest version, had reached 130 million units. The higher-priced Windows XP Pro version made up 70 percent of that figure.

Updates for other flavors of Windows, such as Media Center Edition for PCs geared toward entertainment and Tablet PC Edition for pen-based lightweight PCs.

Microsoft's seven business segments are: the Client group for Windows; the Information Worker group for Office and work-related applications; the Server division for software that manages computer networks; Business Solutions for software for small- and medium-sized businesses; the MSN Internet Service; the Mobile and Embedded division for mobile and handheld devices; and Home and Entertainment, which includes the games, Xbox and consumer hardware businesses.