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Microsoft's Muglia: IT budgets are 'cramped'

Company's server and tools boss talks with CNET News' Ina Fried about how the economic downturn is affecting his business.

For more quarters than I can remember now, Microsoft's server and tools unit has been the company's shining star. While desktop Windows and Office still provide the bulk of revenue and profits, it's the server business that has been the fastest growing of Microsoft's big businesses.

That may continue to be the case, but in an interview on Tuesday, Microsoft's server and tools boss, Bob Muglia, said that the business is definitely feeling the heat from the global economic slowdown.

"Servers are probably growing flat, 1 (percent), 2 percent sorts of numbers," Muglia said, referring to recently lowered industry forecasts. "IT budgets are cramped. It's not like IT is going to dramatically contract, but it is certainly slowing pretty dramatically."

Muglia said the server and tools business will add employees overall during the current fiscal year, which runs through June. But, he noted, the company had been hiring ahead of its targets, so most of that growth comes from folks already hired during the July-to-September time frame.

"Certainly there is no question, Microsoft is not immune to circumstance," Muglia said. "We have slowed our growth."

He still has 150 open positions in his unit, but Muglia noted that is down from more than 900 at one point.

Muglia said the company as a whole and his unit have been looking at where their priorities lie. Among the things he said the company decided to scrap was its paid Windows Live OneCare antivirus software. Instead, he said, the company opted to offer a much more limited (and less costly to develop) free service, currently code-named Morro.

In addition to talking about the economy, Muglia talked a lot about Windows Azure, Windows 7, and virtualization. I'll have more on those topics in a later post.

In the meantime, check out the video interview we shot on Tuesday.