Microsoft Weighs Challenges Ahead

Microsoft on Tuesday gave an assessment of the challenges it faces, including the threat posed by Linux and open-source software.

Microsoft Corp. on Tuesday gave an assessment of the challenges it faces, including the threat posed by Linux and open-source software.

In a teleconference with the media and analysts on Tuesday to present the Redmond, Wash., companys third-quarter financial results John Connors, Microsofts chief financial officer, said Microsoft is still committed to the broad range of investments it deemed imperative at the start of the year to secure the companys long-term health.

"But, as a company, we could perhaps have done a better job of predicting the seasonality and impact of some of these investments, which is why you see a bit of a bump in operating expense for the fourth quarter," he said.

But the company is in a far better financial position ending the current financial year than it was at the outset of the year. And while from a macroeconomic standpoint the company is exiting a difficult year and entering one of uncertainty, its revenue has held up well so far in fiscal 2003, he said.

To garner $32 billion in annual revenue and grow against that number profitably, Microsoft needs to be mindful of the risks and challenges it faces. The general economic environment is the first risk, but also a possible driver. If there is an improvement in global corporate profits, then technology and consumer spending would likely increase, Connors said.

But if that does not happen, the pressure on IT spend would probably not abate and consumer spending would remain muted. While Microsoft is not planning for a significant upturn in demand for IT, it also is not planning for a significant decline from current levels, he said.

"Linux and non-commercial software is risk number two," Connors said, without elaborating. Microsoft Corp. chairman and chief software architect Bill Gates in February told more than 600 of Microsofts Most Valuable Professionals (MVPs) that he took the Linux threat seriously.

In its latest 10-Q quarterly filing, Microsoft also said that the popularization of the open-source movement continued to pose a significant challenge to its business model.