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8/3/2003

Gates: Microsoft not fully grown

By Joseph Menn
Los Angeles Times

REDMOND, Wash. — Microsoft Corp. Chairman Bill Gates recently disputed the view that the software giant he founded 28 years ago is a mature company in a mature industry past the stage of rapid growth.

Speaking to Wall Street analysts and big shareholders assembled on Microsoft’s campus, he criticized experts and competitors who had said improved software and hardware wouldn't boost companies that use it and the economy as a whole as much in the future.

“We’re just at the beginning of what we can do with software,” Gates said during an annual series of briefings. “We’ve really just scratched the surface.”

To emphasize that point, he said Microsoft would increase its spending on research and development by 8 percent in the fiscal year that began July 1 to $6.8 billion. Company researchers are trying to improve speech recognition for computers and incorporate digital handwriting into more tasks. They also are working on tools to make collaboration easier across various devices and make videoconferencing as routine as sending e-mail.

Microsoft Chief Executive Steve Ballmer — noting that “it’s strange for me to feel like I have to be a cheerleader” — said he saw opportunity in a wide range of markets. “We just look out there like kids in a candy store,” Ballmer said, rubbing his hands together with comic exaggeration.

Gates contested the notion, laid out in a recent Harvard Business Review article, that technology has lost its power to transform companies. He also challenged what he described as IBM Corp.’s position that technology is hopelessly complex and firms should simply hire outside consultants to make the best of it.

But there are growing signs that Microsoft has more in common with the likes of General Electric Co. than a Silicon Valley start-up. It kicked off the year by announcing it would pay its first dividend to shareholders. This month, it said it would abandon its long-held practice of awarding stock options to employees and start offering compensation partially based on restricted shares, which don’t have to rise for employees to benefit.

Some Microsoft investors interpret that shift as a precursor to a major dividend payout from the company’s $49 billion cash hoard.

A big dividend would undercut the value of traditional stock options, since share prices generally decline after big chunks of a company’s wealth are distributed.

Microsoft’s stock closed at $26.17 in Friday’s trading, down 24 cents.