Gates sees no economic recovery in 2002

By Eric Auchard

NEW YORK: Microsoft Corporation Chairman Bill Gates said on Sunday that he sees no global economic recovery this year, countering a budding groundswell of optimism tied to economic data pointing to a fast rebound.

Gates, co-founder of the world's largest software supplier, said that corporate capital spending cuts and a glut of excess capacity in hard-hit sectors such as telecommunications may keep the economy moving sideways through the rest of 2002.

"I don't see any big uptick in this year. Japan certainly won't be, and the U.S. won't be," Gates told an audience of editors and reporters attending the five-day World Economic Forum summit of political and business leaders in New York.

On a positive note, he said: "Europe may be a little more positive," referring to a rebound in its overall economy. Gates' remarks contrasted with optimistic views voiced by many delegates here this weekend.

The Conference Board argued in a recent report that the U.S. economy would lead the world economy out of recession later this year, and its gross domestic product grow 4 percent in 2003.

At the World Economic Forum, some economists have argued that Europe was making steady progress toward recovery, but could not lead the world out of recession by itself. Japan's economy may get worse before it gets better, many experts have argued.

Rick Belluzzo, president and chief operating officer of Microsoft, told Reuters in an interview that Gates' comments were referring not simply to the high-tech sector, but to what Microsoft was seeing across the economy in general.

Belluzzo, who oversees day-to-day operations, including sales of Microsoft products, said he was hearing from corporate customers "a lot of words that suggest things are kind of stable now ... but moving sideways."

When asked to forecast when the global economy might see a return back to healthy growth, he echoed Gates, saying that, "It depends on what you mean by 'back.' I think you will start to see growth in two to three quarters. In some segments it may take longer," he said.

Still, he distinguished what was happening in the broad economy to what Microsoft was experiencing in its own business.

"We're going to see a lot of growth" from strong new product introductions, including its Xbox gaming console and its new Windows XP computer operating software system, Belluzzo said.

Eecesses remain in high-tech sector

In his speech, Gates contrasted the Internet stock-fueled "mania" on Wall Street that hit a dead-end two years ago to the current economic environment, and argued that the high-tech economy, in particular, still had further excesses to burn off.

"There are still some companies out there based on the old thinking," Gates said. He was referring to business models that dominated in the late 1990s that assumed a nearly unlimited supply of capital and no immediate pressure to make profits.

"The sobriety will stay, the somberness will stay. It's very healthy ... I like this period where people are forced to play by rules driven by economic sense," Gates said.

He said his observations were based on his vantage point as the head of a principal supplier of software to business and consumer computer markets, adding: "We don't tend to be experts in forecasting."

Gates noted that this only provided a partial view of the tech sector, noting that the telecom sector of the economy, to which Microsoft is less exposed, has a longer road to recovery.

Just last week, both Global Crossing Ltd., a provider of high-capacity undersea networks, and McLeodUSA Inc., a supplier of competitive local phone services, sought bankruptcy protection from their creditors.

Former Microsoft chief financial officer Greg Maffei left the company several years ago to head 360networks, another ambitious telecom start-up, which went bankrupt in 2001.