Microsoft To Address Growth Questions

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REDMOND, Wash. — Analysts and reporters are descending on Microsoft Corp.’s campus for an all-day meeting to hear the world’s largest software company talk about it plans for growth.

The gathering follows two weeks of blockbuster financial news from Redmond, such as the record-setting one-time dividend payout of $32 billion. (In all, the dividend payout plan, and stock buy-back of $30 billion represents about $75 billion that Microsoft plans to share with stakeholders.)

Microsoft’s profit for its fiscal fourth quarter jumped by 82 percent to $2.69 billion (25 cents per share), thanks to a tax benefit, on revenues of $9.29 billion, up 15 percent from last year. But expect plenty of questions about Microsoft’s least profitable areas, such as Microsoft Business Solutions Channel.

”I’d like to see them explain the next steps in integrating the Great Plains/Navision partner channel with the normal Microsoft sales channel, something that created some problems in fiscal 2004,” said Rob Helm, senior analyst for Directions on Microsoft.

”It was originally supposed to happen this fiscal year, but I suspect they might back off from that goal. I’d also be looking for any plans to rationalize the existing product lines, which increasingly overlap in their markets but are still on separate code bases,” he said.

In June, Microsoft streamlined its chain of command for Microsoft Business Solutions, naming division chief Doug Burgum to report directly to CEO Steve Ballmer and Orlando Ayala as the division’s chief operating officer.

Ayala came to Microsoft when it bought Great Plains for $1.1 billion in stock in 2001. He has recently headed up Microsoft’s Small and mid-market solutions and partners group, where he was responsible for the sales strategy for SMBs. The recent management shift is seen as a sign that the business division isn’t living up to Microsoft’s sales expectations.

”I’d also be looking for any plans to rationalize the existing product lines, which increasingly overlap in their markets but are still on separate code bases,” Helm added.

Peter O’Kelly, Developer Analyst for research firm Burton Group, called the organization itself one of Redmond’s big challenges. How to scale up to 60,000 people without losing even more of its developer culture?

”As IT spending picks up, Microsoft’s software matures, and its benefits get cut, Microsoft’s best technical people will be tempted to jump ship,” said O’Kelly. ”I would like to hear how the company is doing on this front so far, and what it is doing to retain employees.”

Microsoft recently said it expected to hire 4,000 to 5,000 people worldwide during its fiscal year 2004, which ended June 30. It is also looking to hire another 6,000 and 7,000 employees worldwide.

There was a time when every person in the company possessed a strong familiarity with every one of Microsoft’s product lines. They had that innate understanding of how it all works together, O’Kelly noted.

Nobody’s saying the company has lost that. O’Kelly pointed out that internal education ranks high in Redmond. The only question is how it plans to go about scaling up another 6,000 employees among the company’s ranks. ”This is also exacerbated by the complexity and scope of product line,” he added.

Beyond that, security and manageability of its product lines remain top issues — from its Windows platforms and across its business segments such as SQL Server, Developer tools such as Visual Studio and Office.

O’Kelly said the killer apps that Microsoft and its thousands of soon-to-be Microsoftians can cook up for Longhorn, its next generation of Windows, are security and manageability.

If the company really nails it with Longhorn, people can feel confident that they don’t have to go to Windows update every day and download another patch, he said. ”Security and manageability are huge, both in reality and perception.”

The IT industry has been living in a nuclear winter the last year years. IT never went away as a potentially strategic competitive advantage, O’Kelly added. ”But plenty of enterprises have said, what I’ve bought is good enough.”

At a time when research firms such as IDC see Microsoft’s growth in its SQL Server segment tapering — which is expected of a ”strong but maturing vendor,” analysts will also be keen to hear more about Microsoft’s enhanced security and encryption features for SQL Server 2005, which is slated to appear next year.

This article was first published on InternetNews.com.