Microsoft touts growth prospects

Reed Stevenson

REDMOND/WASHNGTON: Microsoft Corp., fresh from unveiling a plan to return $75 billion to stakeholders, began the tough task of trying to convince investors it can maintain its past growth rate.

As part of Microsoft's pitch at its annual analysts meeting, the world's largest software maker unveiled a search engine that looks for information on computer hard drives as well as information on the Web, considered the next battleground among search technology providers.

Microsoft's executives are trying to deflect the perception that it has become a mature, slower-growth company, despite 13 percent revenue growth in the year to June at a time when corporate spending is low.

For two decades the industry leader, Microsoft shares now trail the broader market, rising only 12 percent in the company's past fiscal year while the Nasdaq composite index climbed 26 percent.

To boost its shares, also a major incentive for employees, who are paid in part with stock, analysts say that Microsoft will now have to convince investors that it can still grow fast, no easy feat with $36.8 billion per year in revenue.

In his characteristic booming voice, Chief Executive Steve Ballmer said "it's the first analysts' meeting I've been super-pumped up for since I became CEO."

"I feel like today is a very different day," Ballmer said, "Today I get to get up and I get to talk about what I think is an incredible outlook for the company."

Microsoft has long been known for being an aggressive competitor with smaller companies, such as Google Inc. and Netscape that built success through software innovation.

To that end, Microsoft chairman Bill Gates said that the company would apply for 3,000 patents this year and boost research and development spending by 4 percent to $4.8 billion in its current fiscal year from $4.6 billion last year, excluding employee stock compensation costs.

"Us being a relentless competitor is consistent with strong leadership," Ballmer said, "We're not going to shy away from getting into new areas, we're not going to shy away from working relentlessly on improving our products."

Microsoft is trying to grow new businesses, such as the Xbox video game machine, business software for smaller companies, and software for mobile devices, in an effort to diversify its income.

SEARCH HIGHLIGHTED

Microsoft's MSN Internet division, Google and Yahoo Inc. are all preparing for major upgrades over the next year as they try to attract more users and advertising revenue by enhancing their search services.

In a demonstration, MSN vice president Yusuf Mehdi typed search terms into a prototype version of MSN Toolbar, which runs as an add-on to the Internet Explorer browser. Search results from the hard drive, such as e-mail, pictures and documents, were returned nearly instantaneously.

MSN, which posted its first profitable fiscal year after being in the red for a decade, is already running a test version of its simplified Web search page at search.msn.com.

"We have made a lot of progress," Mehdi said, but did not give a launch date or time frame for the new technology.

Microsoft appears to have targeted Google as its newest target to rally the troops.

"Google. Lots of Google fascination," Ballmer said, "We're going to compete very, very, very hard with the kind of persistence and tenacity that people expect from this company."

Analysts had expected Microsoft's leaders to present a stronger message on its growth prospects, after finally addressing the biggest issue on shareholders's minds - its growing cash pile.

"Mark my words," Ballmer said, "We will outgrow others in our business in profit."

Just a couple of days after Microsoft announced its plan last week to return money from its $60.6 billion cash hoard, investors were spooked when it cut its earnings forecast to account for lower investment income expected after the payout.

Under the plan, Microsoft will double its annual dividend, buy back shares over a four-year period and, subject to shareholder approval, and issue a special one-time $3 per share dividend.