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Originally published Monday, July 28, 2008 at 12:00 AM

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Brier Dudley

As other companies cut back, Microsoft keeps spending

With the economy spiraling down and few signs of hope around here, it's worth taking a second look at Microsoft's presentation to Wall Street...

Seattle Times staff columnist

With the economy spiraling down and few signs of hope around here, it's worth taking a second look at Microsoft's presentation to Wall Street last week.

Once a year in July, the top executives spend a day explaining their business to a roomful of financial analysts gathered in Redmond.

There's a numbing array of PowerPoint slides, product road maps, growth charts and earnings minutiae.

This year's big take-aways: No, Microsoft's not buying Yahoo. Yes, the world's finally warming up to Windows Vista.

But more important for the Puget Sound region was the attitude that came through from Chief Executive Steve Ballmer and his generals.

Not about the stock price — of course, they're frustrated that Wall Street doesn't appreciate Microsoft's impressive financial performance.

What really stood out was their bullheaded insistence on spending as much as it takes to keep building new businesses.

While everyone's cutting back, Microsoft keeps the spigot open, especially in its fight with Google over the rapidly evolving world of ad-supported online software and services.

Chief Financial Officer Chris Liddell insisted that Microsoft has not been reckless, and he wouldn't apologize for spending that caused the company to miss its forecasted earnings last quarter by a penny per share.

Expenses appeared to rise in the last quarter, but actually business groups were only using the money they'd been authorized to spend, Liddell explained.

Instead of clamping down to make Wall Street happy, Ballmer, Liddell and company backed the team.

"I feel good about it, but clearly you don't," Liddell told the analysts.

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His goal isn't to cut spending but "to convince you that we are investing money wisely."

The spending should pay off enormously, the executives said, but it will take time.

The tech-industry adage is that it takes Microsoft three tries to get a product right. Last week, the company told analysts that, financially, it may take four or more versions and 10 years for a huge, new franchise to take off.

No wonder there are so many construction cranes on Microsoft's campus in Redmond. Remember, most of the company's spending is on people, many of whom end up in the Puget Sound region.

Overall employment in the state's software industry grew 5 percent over the past year, although it has flattened a bit, growing just 0.4 percent from May to June, according to Greg Weeks, the state's Employment Security Department's director of labor market and economic analysis.

"They have historically been pretty immune to economic downturns so if the past is a guide, I think that's an industry that will stay in decent shape," he said.

I wonder if the online ad market will be less alluring as the downturn continues. Either way, Microsoft's big investments in online search and ad-supported services couldn't come at a better time, with the state's financial-services companies and housing market taking hits.

Bullish attitude

Microsoft's been just as bullish in less public conversations with the state economic and revenue forecast council.

A company representative has told the council that Microsoft "expects pretty strong hiring to continue," said Bret Bertolin, the council's senior economic forecaster.

As of June 30, the company had more than 91,000 employees worldwide, 39,311 locally. The state software industry had a total of 49,300, and the industry has seen about 2,500 jobs added per year over the past two years, Bertolin said.

Growth continues

So far, it appears that growth will continue through the current downturn, and maybe until Boeing clears its backlog of plane orders.

The forecast council is expecting 2,500 more software jobs each year for the next three years — a total of 7,500 more, bringing the industry to 56,800.

"It's one of the important factors that's been leading to stronger growth in Washington than elsewhere," Bertolin said.

That's not counting jobs at Google, which has said it may have thousands of employees here within five years. Search engines are tracked in a separate category, along with Internet service providers.

We'll have to see how long Microsoft keeps it up.

Of course, Microsoft employees are no longer becoming stock-option millionaires, an effect that helped the local economy through rough patches in the 1990s.

But we'll take what we can get.

Brier Dudley's column appears Mondays. Reach him at 206-515-5687 or bdudley@seattletimes.com.

Copyright © 2008 The Seattle Times Company

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About Brier Dudley
Brier Dudley offers a critical look at technology and business issues affecting the Northwest.
bdudley@seattletimes.com | 206-515-5687

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