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Microsoft sees 'fantastic' opportunities

CEO Ballmer emphasizes Cambridge operations will receive funding, 'add talent'

By Robert Weisman
Globe Staff / February 26, 2009
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CAMBRIDGE - The slumping economy is deflating the high-tech business along with other industries, but Microsoft Corp. will continue to invest in research and hopes to emerge from the recession stronger, the company's top executive said yesterday.

"Our whole industry will come down," Steve Ballmer, Microsoft's chief executive, said in an interview at the company's New England Research and Development Center near Kendall Square. "But that's OK. The innovation opportunities are fantastic for us. So are the opportunities to improve market share, and all those good things. We may have to do a little reset economically, but we'll still be profitable."

Microsoft has already had two rounds of cost-cutting in response to the downturn and is paring between 2,000 and 3,000 jobs globally. The first round of layoffs, at the end of last month, didn't touch its Massachusetts operations, which now employ nearly 1,000 workers, including about 200 in its new office at One Memorial Drive.

While it is scaling back in some areas, Microsoft is investing in others, especially the start-up labs and long-term research operations that have opened in Cambridge over the past year. Ballmer said the company expects to hire small numbers of new researchers and engineers in the near future. "I think we will, net, want to add talent here," he said. "But that means, net, taking talent out someplace else."

Sitting in a conference room overlooking the Charles River, the Microsoft chief said he was impressed with the level of technology sophistication in Massachusetts, where he attended Harvard University and met Microsoft cofounder Bill Gates.

"Massachusetts is an unbelievable place: the talent, the schools, the educational institutions, the start-ups," Ballmer said. "I bet if you do Microsoft people per capita, Massachusetts, if it was a country, would probably be our second or third most dense. Ireland, Denmark, Israel, and Massachusetts. I just think it's a testimony to the great talent here."

From the standpoint of an outsider, Ballmer said he thought the area's high-tech center of gravity had shifted to Cambridge from the Route 128 corridor that dominated technology in his college days.

"Cambridge is a great brand," he said. "Route 128, I don't think is a tech brand any more. The mentality now is more around MIT, Harvard, and the other universities than it is around the 128 corridor."

Ballmer, who met with Microsoft employees, Boston financial analysts, and Governor Deval L. Patrick during his visit to the area yesterday, said he was confident that job cuts already undertaken will be sufficient to carry the company through the downturn to recovery.

"We went through two rounds over the last three months of saying, 'What's the right cost basis?' " he said. "You can't do that forever. If you keep doing that forever, you provide no stability to your people on where you're going. We have to achieve the plans we've set out. We're not at the cost structure we want to be at. But we need to complete that."

At the same time, Ballmer conceded Microsoft, like its rivals, is being hurt by a pullback in business investing in computers and servers, and in consumers buying home computers and electronics. He said capital spending is plunging and information technology, a category that includes computers running the Windows operating system and Office suite of business software, makes up roughly half of all capital spending.

"We've done some scenario planning that's probably been a little edgier than some others . . . a little edgier in terms of how much could the personal computer and server hardware markets be affected," he said. "I have what I hope is worst case, and I've modeled it."

Ballmer declined to spell out his worst-case scenario for sales during the recession. But he said, "Our expenses will stay flat as long as things are no worse than my worst case. Now if things go worse than my worst case, it's not going to be a good situation."

Praising President Obama's stimulus plan, Ballmer said, "The economy needs stimulating, so I'm glad to see that happen. I think it was important to act quickly, and quick action has happened." But he said a recovery wouldn't begin until excess debt is wrung out of the financial system.

"Money has to come out," Ballmer said. "You can't have a painless deleveraging. I think the government is doing wonderful things to try to ease the pain. But there is pain."

Robert Weisman can be reached at weisman@globe.com.

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