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Microsoft optimistic despite breakup threat

The software giant's senior executives paint a rosy and profitable future for the company, despite the possibility of a breakup as its antitrust case winds through the courts.

    REDMOND, Wash.--Microsoft's senior executives are painting a rosy and profitable future for the software giant, despite the possibility of a company breakup as its antitrust case winds through the courts.

    "I'm bullish," Microsoft chief executive Steve Ballmer said in a speech during the company's annual financial analysts' meeting at company headquarters here yesterday.

    "We have an incredible future. We are investing in the right thing and have talented, energetic folks that can take this company to the next level."

    Microsoft executives detailed the company's overall financial outlook and business strategy during the analysts' meeting. They expect continued strong sales for Windows, the company's ubiquitous operating system, as well as for consumer products such as its MSN Web portal.

    Earlier in the day, chairman Bill Gates said Microsoft will spend $4.4 billion on research and development in high-growth markets, such as Web development, wireless and gaming, as well as in its MSN network and consumer services. The company also said it expects to spend $500 million to market and sell its forthcoming Xbox video game console, the most money the software giant has ever spent to launch a new product.

    Microsoft this year is releasing a family of new e-commerce software to help businesses get on the Web, including the SQL Server 2000 database and BizTalk data integration server.

    Driven by strong corporate sales of its Windows 2000 operating system, Microsoft last week reported fourth-quarter earnings of $2.41 billion, or 44 cents per share, on revenue of $5.8 billion.

    But the company's shares have taken a beating in the past six months, falling from a high of $119 to their current price of $69.38.

    In the next few years, Microsoft executives believe the firm will reap more revenue from new markets, including gaming, interactive television, wireless and small-business services.

    Some Wall Street analysts came away from the meeting feeling upbeat about Microsoft's future. "They have a good track record in maturing their investments and turning them into successful businesses," Wit SoundView analyst Mark Specker said.

    As reported, the company is also embarking on a new strategy to move its Windows operating system and software to the Web. Microsoft's new strategy, called Microsoft.Net, is aimed at making its software available over the Internet to traditional PCs and devices such as cell phones, handheld computers and Web pads.

    As a result, Microsoft in the next three years foresees a bigger chunk of its revenue stream coming from Net-based software rentals rather than through royalties from the purchasing of shrink-wrapped software.

    For example, Microsoft will offer a version of Microsoft Office software over the Web, called Office.Net, as well as subscriber-based services on MSN. Despite the change, Microsoft chief financial officer John Connors said the company will continue to grow its revenue.

    "We do not see a cliff, a hiccup. We see an opportunity to grow the business...in a growing technology pie," Connors said.

    While Microsoft expects a smooth transition with .Net software, analyst Gary Dvorchak, senior vice president of Provident Investment Counsel, said Microsoft faces a battle against rivals such as Oracle, IBM and Sun Microsystems, which have long touted the vision of Internet-based software.

    "They're coming late to the game to say, 'Come to our software platform,'" Dvorchak said. "It's going to be an uphill battle."

    Ballmer admitted Windows 2000: The next generationthat the company regretted not releasing a new consumer version of Windows at the time it released Windows 2000 for businesses earlier this year. That would have sparked more revenue growth earlier in the year. The company will come out with a new consumer version of Windows later this year, he added.

    Bob Herbold, Microsoft's chief operating officer, said the company's employee attrition rate was better than the technology industry's average. In the past fiscal year, Microsoft's attrition rate was 9.6 percent of its work force, while the industry average was 18.1 percent, he said.