No. 1 Microsoft runs to stay in place Software giant braves a battered market

August 02, 1993|By Seattle Times

SEATTLE -- There's a worried little software company out in Redmond, Wash., trying to figure out how to succeed in the constantly changing world of high technology.

Its name is Microsoft.

Calling the world's No. 1 software maker small and frightened may be like describing the Mississippi Valley as sunny and dry. With estimated revenues of $3.8 billion for its recently ended fiscal year, a 14,400-employee work force and market capitalization of $22.5 billion, Microsoft seems more a charging bull than cowering puppy.

But warning signs abound, especially for a company that has never been comfortable basking in its own success. The personal-computer industry, rocked by tumbling earnings at Apple and Dell, has turned into the Cape Fear of American commerce. Investors recently trashed technology stocks, taking down perennial winners such as Intel and Microsoft as well as the latest earnings casualties, Apple and Dell.

Microsoft stock, trading in the mid-$90 range in June, sank $5 to $74 in heavy trading Friday after the company warned of a major slowdown in earnings. The loss came after a "downbeat" meeting with analysts Thursday.

"Some day this company will be down and not growing by more than 10 to 15 percent a year," Microsoft Chairman Bill Gates told the analysts.

Mike Brown, Microsoft vice president, said he expected revenues to fall to about $958 million in the September quarter from a record $1.04 billion in the quarter ended June 30.

The fickleness of high-tech fortunes provides plenty of incentive for looking over one's shoulder, company executives say.

"This remains a business where you can never sit on your laurels," said Microsoft's head of human resources, Mike Murray, who also spent time at Apple Computer Inc. and Novell Inc. "The intensity here is the same you'd find in a start-up."

Microsoft is attacking the coming year with its usual frenetic efficiency, introducing new products, moving people around, changing titles. The new Microspeak: reinventing.

"In a lot of ways we're having to reinvent the way Microsoft works with customers, and also reinvent what the industry standard will be,"said John Neilson, solutions marketing manager, who is overhauling the way Microsoft supports big corporate clients such as oil, airline, banking and information technology companies.

The ferment has given rise to rumblings over lost jobs and divisional shake-ups, and Vice President Mike Maples has ordered budget cuts for some divisions.

"We've definitely reached critical mass in several groups," said Mr. Murray. "It's not clear that adding three or four product managers in the Excel advertising group will make better ads."

The goal is to "make sure we don't have a case of Microsoft announcing layoffs, which implies the business model is not working." Microsoft will not put a figure on expected growth, but sources say its head count could expand by 1,600 or 2,000 in the coming year.

At 11 percent to 14 percent, that's a smaller increase than previous years, but it reflects Microsoft's lean-machine outlook. It's also above the norm for an embattled industry used to hiring-firing cycles.

"We think Microsoft is still in a high-growth phase," said Mike Kwatinetz of PaineWebber. Latest street estimates peg Microsoft earnings growth at 71 cents a share for 1994, from $3.14 to $3.85, for 23 percent growth.

That would be its smallest annual growth since Bill Gates and Paul Allen formed the company in 1975. But the law of large numbers, a tough economy and slimmer software margins are catching up even with Microsoft. Research-and-development expenses, already double to triple the industry norm, will affect profit margins as well.

As Mr. Brown put it recently, "These billions are getting harder to come by."

Windows NT coming

Far from bunkering in the face of smaller growth, Microsoft is aggressively chasing new markets. In a week or two it is expected to begin shipping Windows NT, its enhanced operating system aimed at corporations replacing mainframe and miniframe computers with linked personal computers. The program is expected to sell only 1 million or so its first year but represents a huge potential.

NT, for New Technology, is aimed at corporations that want the capabilities of mainframes -- electronic mail, shared printing, shared documents, access to data bases and other "distributed services" -- for all employees throughout their enterprise, domestically and abroad. In the past, IBM, Digital Equipment, Wang and other large computer makers would install mainframes or miniframes and then, for a certain fee, assign service personnel to maintain the equipment.

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.