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.
Connors said on Tuesday that growing new business against a large base in a difficult spend environment is the third challenge Microsoft faces, while litigation generally is the fourth risk.
Connors said there were also several one-time items in the quarter ended March 31 that were “extremely unlikely to recur in coming periods.” Microsoft is not planning on a marked increase in the shift to Windows XP Professional relative to what the company saw in the current year.
It is also not planning for foreign exchange impacts in the current year. “And, we will quite certainly not benefit from a significant change in our licensing program as we did in this fiscal years transition to Licensing 6.0,” he said.
Small and midsized businesses represent the most tangible area of growth for technology companies, especially Microsoft. As such, Microsoft will continue to invest in partner recruitment and development and broad-based demand creation activities.
“We will also invest heavily in the next fiscal year to make sure we have massive connections with developers, and we will invest to ensure that we continue to have the best platform for developers worldwide. They clearly understand the advantage of our toolset, our architecture and our overall approach for building the best applications at the lowest cost,” he said.
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