Microsoft reaffirms poor outlook, will keep spending

SEATTLE -- Speaking at a meeting in New York, Chief Executive Steve Ballmer said Microsoft is looking to the television maker RCA as a role model. RCA spent money on research and development through the Great Depression, then dominated its market, he said.

Ballmer pointed to areas of Microsoft's business that will be hit hardest by the downturn and sketched out the products and projects that will get the bulk of the company's $27.5 billion in annual operating expenses.

Microsoft, which recently resorted to its first mass layoffs ever, will feel the economic pain most acutely in its businesses that sell the Windows operating system and Office desktop software, Ballmer said. Yet Microsoft plans to spend most heavily on those two segments as the company readies forthcoming versions, Windows 7 and Office 14, and pumps more money into advertising. Microsoft has said it expects to release Windows 7 by January 2010.

The CEO also said Microsoft has poured resources into a new version of the Internet Explorer Web browser to reverse losses in market share.

"Browsers are not a commodity. Browsers are key features of operating systems," he said.

Ballmer addressed Microsoft's strategy for "netbooks," the brightest spot in today's PC industry. Today, most of these inexpensive, low-powered laptops run Windows XP because its replacement system, Vista, requires too many computing resources. Windows XP is less profitable for Microsoft, however, so the company has said that the full versions of Windows 7 will work well on these small laptops.

On Tuesday, however, Ballmer seemed to indicate that Microsoft is considering how to make software for netbooks into a more profitable business. He touched on the idea of a separate netbook version of Windows 7, but also seemed to say Windows 7 could push up netbook prices.