Ballmer Sees Recession as Investment Opportunity

Microsoft plans to continue spending and trying to increase market share in key areas despite the current global recession, which can be a good opportunity to invest strategically for the economy's eventual turnaround, Microsoft CEO Steve Ballmer said Tuesday.

However, in his discussion to members of the financial community, Ballmer reiterated that he does not expect the economy to improve very quickly, so Microsoft is prepared to hunker down and spend carefully until it does.

Ballmer said to figure out how, he's taking cues from how companies handled previous economic crises, most notably the Great Depression of the late 1920s and 1930s in the U.S. "I've had guys go through annual reports of a bunch of companies from 1927 to 1938 to see what were those guys saying," he said.

Microsoft is following the example of one company in particular, RCA, which kept investing in research and development (R&D) during the Depression and afterward dominated its industry, Ballmer said. Microsoft, too, will try to make gains in some areas where it can improve its market-share position while the economy is down.

"We'll compete for share -- that's one thing that's economy independent," he said, adding that he is repeating a mantra of "share" to his staff to remind them of its importance.

Another thing Ballmer took away from his historical research, however, is that the climate will continue to be difficult for the foreseeable future. "[Those companies] all have a story associated with them, and none of them is a quick recovery," he said.

Keeping this in mind, Microsoft expects its revenue expectations to be conservative and its revenue growth to be lower than usual for the rest of the fiscal year and possibly beyond, Ballmer said. The company's fiscal years ends June 30.

Microsoft did not give financial guidance for the remainder of the year when it announced its second-quarter results and layoffs of up to 5,000 people in January. On Tuesday it was the same, with neither Ballmer nor Microsoft CFO Chris Liddell, who also spoke to analysts, giving financial guidance. Neither were layoffs were mentioned on the call, though Ballmer and Liddell emphasized that Microsoft would continue to examine how the company could reduce costs even as it continued to invest.

One of the areas where Microsoft will invest to improve its market-share position is online search and advertising, which continues to be a thorn in the company's side as Google shows no sign of giving up its market dominance.

Ballmer acknowledged criticism of Microsoft's search and advertising business, which continues to flag despite significant investment already from the company over the past several years. Microsoft's market share -- which hovers around 3 percent to 4 percent, according to analysts -- has barely budged in that time.

"Some of you will ask, 'Why do you stay in search and advertising?'" he said, then reiterated Microsoft's stance that the market, while dominated globally by Google, remains a "good opportunity" for revenue and "extremely important competitively" for Microsoft.

Ballmer also restated his opinion that Microsoft and Yahoo should engineer some kind of tie-up to compete with Google, but "short-circuited" the possibility of a full acquisition. He said he will approach new Yahoo CEO Carol Bartz, who took over from Jerry Yang last month when she has settled more comfortably into her position.

However, Ballmer said he will exercise caution as he continues to invest in this space while recognizing it's "not a market that's going to swing from 3 percent/4 percent global share to 25 percent in a year."

"We know we have to be responsible in the money that we've invested," he said, adding that he does not want to be known as the "Jerry Yang" -- that is, "the guy that invested forever" -- of the search-advertising market.

Microsoft also is increasing its investment slightly in its Windows client OS business though not its Windows Mobile OS business, which one analyst noted during the call's question-and-answer period was puzzling because he believes the mobile-device market would be a strategic area of investment because of its growth potential.

However, Ballmer said he sees Microsoft's Windows client -- which typically means the desktop OS, a very stable market for Microsoft -- and its Windows mobile business drawing closer together. Investment in Windows client eventually will spill over into Windows on mobile devices, he said.

"At the end of the day, the technology base will be largely shared over times, whereas historically, it was not shared," Ballmer said.

He added that one day the kernel for Microsoft's Windows desktop OS and its client OS also will share the same technology, though he did not provide a time frame for this integration.

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