Microsoft aims to save $1 billion this fiscal year

Microsoft customers have heard the vendor profess that its software allows them to "do more with less," but now it's Microsoft employees' turn: The company is cutting back on benefits.

Microsoft plans to save nearly US$1 billion through efficiency improvements and cost-cutting in its 2005 fiscal year, Microsoft Chief Executive Officer (CEO) Steve Ballmer said in his annual strategy e-mail message to employees on Tuesday. The company's new fiscal year started on July 1.

Over the past three years, expenses at Microsoft have grown faster than revenue. "This is obviously not a trend we can continue," Ballmer wrote. The company's plan to save money includes better coordinated marketing, which should save hundreds of millions of dollars, according to Ballmer.

The efforts to reduce costs have also hit Microsoft employees. The software maker has made changes to employee benefits. However, salaries will go up consistent with inflation and superior performers will receive bigger raises, he wrote.

"Other companies have been severe in tightening costs in the last few years -- layoffs, major benefit reductions, etc. We have not done these things and want to be prudent now so we avoid severe measures later," Ballmer wrote.

Microsoft has to overcome its "big company ills" with a "strong focus on accountability for results with customers and shareholders," according to Ballmer. The CEO called upon employees to set clear and measurable goals and deliver on those commitments.

The e-mail message from Ballmer reflects the overall state of the company, said Rob Enderle, principal analyst with The Enderle Group.

"Microsoft is buttoning down for what undoubtedly will be a period of tough growth, and Steve is getting the troops ready for the belt-tightening to come," he said. "They clearly are concentrating more and more on margins and are setting some aggressive targets."

In the e-mail message, Ballmer also laid out focus areas for the company. The list contains no surprises and includes all of Microsoft's current product groups. The key to growth is innovation, Ballmer wrote.

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