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At Microsoft, so much for cost cutting Print E-mail
Wednesday, 03 March 2010

By Matthew Quinn

After initiating its first companywide job cuts last year, Microsoft embarked on a major cost-controlling endeavor. And now that the software giant's prospects have turned, it's quickly shifting from cost cutting to merely cost containment.

On Tuesday, Microsoft Chief Financial Officer Peter Klein said the company plans to boost operating expenditures by as much as 5 percent in fiscal 2011, Bloomberg reported.

Investors have been clamoring for Microsoft to contain expenses for years, but it took the deep economic downturn to force the company's hand.

In January 2009, Microsoft announced a program to reduce discretionary operating expenses and capital expenditures and eliminate 5,000 positions in research and development, marketing, sales, finance, legal, human resources, and information technology by June 30, 2010. As of year-end 2009, the company reduced headcount by 5,300.

Over the 12 months since the cost-controlling program was announced, Microsoft cut operating expenses by 7 percent including cost of revenue and 9 percent excluding it. However, a big chunk of the reduction came from decreased costs for legal settlements and legal contingencies. Revenue fell 5 percent over that time.

The reversal will surely come as a disappointment to some. "Opex has been a thorny issue between Microsoft and investors for many years, and some investors may have been hoping for a positive surprise on that front," Sid Parakh, an analyst at McAdams Wright Ragen, told Bloomberg.

Of course, a top-end increase of 5 percent really isn't all that bad for Microsoft, considering operating expenses including cost of revenue have increased by double digits in three of the past four years.

Indeed, over Microsoft's fiscal years 2005 through 2009, growth in operating expenses including cost of revenue outpaced revenue growth.

No wonder investors have been a bit prickly about the issue in the past.

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