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Friday, November 12, 2004 - Page updated at 12:00 A.M.
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Microsoft to double size of India facilities

By Brier Dudley
Seattle Times technology reporter

BETTY UDESEN / THE SEATTLE TIMES
Microsoft has suspended work on a planned Issaquah Highlands campus and has given up options on 87 of the site's 150 acres.
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Microsoft Chief Executive Steve Ballmer is breaking ground next week on a project that would double the size of its new facilities in Hyderabad, India, a move that could heighten concerns about U.S. corporations' increasing use of technology workers overseas.

The company insists that most of its work will continue to be done in Redmond, but it appears to be accelerating expansion plans in India.

At the same time, it recently laid off technical workers in Redmond and slowed its rate of job creation in the U.S.

Microsoft has also suspended work on a second local campus, in Issaquah, and last month it gave up more than half the land it had reserved for that project.

Spokeswoman Tami Begasse said the company continues to grow in the Seattle area. She noted that it is buying buildings adjacent to its Redmond campus and plans to hire about 3,000 people here in the current fiscal year, which ends June 30.

"As we focus on growing our business globally and gaining efficiencies in our business and processes, the majority of our core development work will remain in Redmond," Begasse said.

She confirmed the company is starting construction of a 250,000-square-foot building that will double the office space at its Hyderabad campus, which itself is set to open in January.

The campus is the flagship of Microsoft's wide-ranging business activities in India. It will house the India Development Center, a software engineering center that has been in leased space since 1998.

Last year the company bought 42.5 acres for the campus and started work on a building resembling those at its headquarters in Redmond. That first building is due to be occupied in January.

By adding a second building, Microsoft will increase the capacity of its campus from 1,600 to 3,200 workers by 2006, when the second building is expected to be completed. But it's not planning to start with that many workers at the campus.

Currently Microsoft has about 625 employees in Hyderabad, including about 500 working on products such as server and business-application software.

Begasse said plans for the second building are still being finalized. Other occupants may include temporary workers and employees of companies working with Microsoft. Ballmer is expected to discuss the project with government officials next week during his first trip to India in nearly a decade. He's scheduled to visit Hyderabad and inaugurate the campus.

Ballmer's trip will be closely watched in India, where national newspapers are already covering it as a major news event. It's the first significant visit from the world's largest software company since elections in the U.S. and India highlighted voters' mixed feelings about the benefits of globalization.

In India, voters threw out of office the national and regional politicians who took credit for turning the country into a technology leader, in part because the majority didn't feel that it was benefiting from the changes.

Globalization and the increasing interdependence of nations were also issues in the U.S. election, but voters chose the presidential candidate considered to be more sympathetic to outsourcing and corporations expanding their global presence.

Microsoft's India employees make up a small portion of the company's 57,000-person work force, India's 800,000 technology workers and the millions who work in the industry in the U.S.

Yet the plans are likely to rattle employees concerned that overseas competition is affecting their job security and ability to get raises, said Marcus Courtney, president of the Washington Alliance of Technology Workers, a Seattle-based labor group.

"It's going to increase the anxiety and concerns Microsoft employees have surrounding job security," he said. "Is the growth of Microsoft overseas in places such as India coming at the expense of jobs here in Redmond, Washington?"

Microsoft has made no secret about its presence in India and its enthusiasm for the country's engineering talent and market potential. But it has been quiet about the scale of its plans for Hyderabad, especially after it was criticized by labor groups in 2002 for an internal presentation that urged Windows managers to evaluate which projects could be done by programmers in India.

The presentation was written in part by S. Somasegar, a vice president who has managed the Hyderabad center since it opened in 1998.

Somasegar has said the presentation was misinterpreted, and the company is not moving work wholesale to India. But it is expanding globally, particularly in key markets such as India and China, where it wants to have a larger presence and work with local software developers and companies that use and sell its products.

An employee in India costs about half that of an employee in Redmond, but Somasegar said that's not the company's primary reason for expanding overseas.

"The notion is that if we are continuing to grow, can we take a little bit of that growth and do it in some other parts of the world where there is a strategic reason for us to have a bigger presence, both in terms of the market opportunity, in terms of the number of developers in the particular region, in terms of the number of companies we want to partner with that are going to help us in the grand scheme of things?" he said during an interview last year.

"And if so," he added, "let us see whether we can do a little bit of the growth in other parts of the world. That's how I think about it."

Last summer the company said it had no immediate plans to further expand the Hyderabad campus beyond a single building.

The latest building plans were disclosed Wednesday in a Times of India story on Ballmer's trip. It attributed the news to unnamed government sources.

Meanwhile, Microsoft has been trying to cut costs to maintain its financial performance during a period of slower sales growth.

That has led to layoffs in Redmond, including 93 jobs cut in September in the server division.

Overall hiring has slowed at the company. The company had forecast 4,000 to 5,000 new jobs in its fiscal year that ended June 30, but it only added 2,000; a spokesman said the company gave out wrong projections initially.

Microsoft expects to create several thousand new jobs in the current fiscal year, with plans to hire about 6,000 to 7,000 people. Most of the local hirings will fill openings created by attrition.

Begasse said about 3,000 of the hirings will be in the Seattle area and "slightly less than 3,000" will be hired overseas.

Meanwhile, the company let options on additional property in Issaquah lapse last month.

In the late 1990s the company took options on 150 acres in the Issaquah Highlands development. The original plan was for a major campus that could accommodate up to 12,000 to 15,000 employees.

The project has stalled, however, and last month the company relinquished options on 87 of the acres. Begasse said there is no date set for construction to begin on the remaining land. "It continues to be part of our long-term growth strategy," she said.

A higher priority for the company is expanding its Redmond campus, and adjacent properties on the west side of Highway 520 have been coming up for sale.

Last month it spent $11.7 million for two buildings: the $4.3 million Color Control building at 3820 150th Ave. N.E. and the $7.4 million Eastside Commercial Center nearby.

"While we expand the Hyderabad area, we also added over 700,000 square feet to the Puget Sound campus through acquisitions," Begasse said.

Brier Dudley: 206-515-5687 or bdudley@seattletimes.com

Copyright © 2004 The Seattle Times Company

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