Analysts look to Microsoft to clarify spending

Analysts are looking for Microsoft to this week shed more light on how it expects its fiscal 2007 spending to pay off for the company and its shareholders.

Last week's fourth-quarter earnings call was the first time Microsoft gave a breakdown of how it plans to spend nearly US$3 billion during its 2007 fiscal year, which began July 1. Of that investment, US$500 million will go into expanding the online business, including the adCenter paid-search platform and Live online services, such as Office Live, CRM Live, Windows Live Search and other Web-based offerings.

Microsoft also said it would spend US$450 million on marketing and launch costs related to its two major product launches in 2007, Windows Vista OS and Office 2007; US$450 million for sales force and general marketing growth; US$1 billion for the development of high-growth products and services, such as business intelligence, unified communications and IPTV (Internet Protocol TV); and another US$300 million in general cost increases and other unspecified spending.

What's not clear is how this spending, which initially was frowned upon by Wall Street because of its amount, will bring more revenue to the company, and more return to investors. Analysts are hoping for clarity on that at Thursday's annual Financial Analyst Meeting in Redmond, Washington, they said.

"The topic where we would like more granularity is what type of return should investors expect from the FY07 incremental investments and over how long of a time period," UBS analyst Heather Bellini wrote in a research note last week.

In particular, analysts said they will be looking for information about how investment in online properties and services, especially adCenter, will pay off. Microsoft launched adCenter in the U.S. in May as part of its plan to win more advertising revenue for its search engine and online properties. However, during its quarterly earnings announcement last Thursday, Microsoft said growth in advertising for its MSN business remained flat, and MSN revenue was down 3 percent year-over-year.

With online advertising numbers for both Google and Yahoo continuing to grow, it seems Microsoft should be seeing more gains in that area now that adCenter has been rolled out, said Matt Rosoff, an analyst with Directions on Microsoft.

"We're seeing Google and Yahoo grow fast, so when is Microsoft's advertising revenue growth going to start rising?" he said. "They're investing a lot in building this out. At some point you want to see them capitalize on that or make a prediction [on how long it will take]."

Analysts also hope to hear more about Zune, Microsoft's planned music player and service to rival Apple Computer's iPod and iTunes. Microsoft on Friday confirmed it was working on Zune, which the company bills as a combination of hardware and software aimed at building a community of users to connect them to music and each other, and expects the first offerings to be available this year. But it didn't say exactly how Zune will work, and whether it will be as important a product as its Xbox game console or just another product in its growing entertainment portfolio.

"I'm interested to know how much they'll spend on manufacturing, marketing, what kind of market share and revenue they expect [from Zune]," Rosoff said.

Join the newsletter!


Sign up to gain exclusive access to email subscriptions, event invitations, competitions, giveaways, and much more.

Membership is free, and your security and privacy remain protected. View our privacy policy before signing up.

Error: Please check your email address.
Keep up with the latest tech news, reviews and previews by subscribing to the Good Gear Guide newsletter.

Elizabeth Montalbano

IDG News Service
Show Comments

Most Popular Reviews

Latest Articles


PCW Evaluation Team

Tom Sellers


This smart laptop was enjoyable to use and great to work on – creating content was super simple.

Lolita Wang


It really doesn’t get more “gaming laptop” than this.

Jack Jeffries


As the Maserati or BMW of laptops, it would fit perfectly in the hands of a professional needing firepower under the hood, sophistication and class on the surface, and gaming prowess (sports mode if you will) in between.

Taylor Carr


The MSI PS63 is an amazing laptop and I would definitely consider buying one in the future.

Christopher Low

Brother RJ-4230B

This small mobile printer is exactly what I need for invoicing and other jobs such as sending fellow tradesman details or step-by-step instructions that I can easily print off from my phone or the Web.

Aysha Strobbe

Microsoft Office 365/HP Spectre x360

Microsoft Office continues to make a student’s life that little bit easier by offering reliable, easy to use, time-saving functionality, while continuing to develop new features that further enhance what is already a formidable collection of applications

Featured Content

Product Launch Showcase

Don’t have an account? Sign up here

Don't have an account? Sign up now

Forgot password?