Leaner Microsoft primed to prosper says Kiwi CFO

Chris Liddell at the Tech Ed conference in Auckland this week. Photo / Supplied

The Kiwi holding the purse strings at Microsoft says the world's largest software company is riding out the global financial crisis by cutting costs but at the same time spending more on research and development.

Chris Liddell, Microsoft's chief financial officer for the past five years, was back in Auckland this week as the keynote speaker at the company's annual software developer and business partner conference, Tech Ed.

The former head of Carter Holt Harvey and chief financial officer at International Paper used his speech to outline Microsoft's five-point strategy for surviving the economic downturn, saying it was a plan all companies could broadly adopt.

While its sales have been knocked back by the combined effects of the economic meltdown and increased competition in the IT market, Microsoft remains one of the world's most profitable businesses. It reported a net profit of US$20.4 billion ($29 billion) for the year to June from revenue of US$58.4 billion.

Liddell's message to the audience of more than 2000 attending the Auckland conference was, not surprisingly, upbeat. He said in the "subdued" economic environment of the next few years, the software industry would play an even more important role in driving business productivity, which was good news for both Microsoft and New Zealand.

"I think the next decade or two are going to make the last decade or two look like we were just warming up, so anyone who thinks [New Zealand is] behind doesn't have to worry. The opportunities are phenomenal for us as a country."

While many IT industry multinationals have stumbled badly over the past year, Microsoft is in the enviable position of having gone into the financial crisis with a very healthy balance sheet. It has about US$30 billion in the bank.

"[Since the financial crisis] we have focused enormously on cash because we think it's not only important from a liquidity point of view, but there are going to be a lot of acquisition opportunities ... in the next five or ten years, which are going to be phenomenal in terms of driving growth for us as a company," Liddell said.

Microsoft has also slashed costs significantly over the past year. It had intended to hike operating expenses by US$4.1 billion in the last financial year, based on "a mentality that we were going to see growth at historical levels" but had pegged the increase back to US$700 million. Cutbacks included sacking 5000 workers this year in the company's first-ever major round of redundancies.

"We basically put the brakes on in November or December and a lot of my life over the last six or nine months has been rethinking the whole cost base of the company and bringing it down to essentially flat year-on-year," Liddell said.

One area not subjected to the razor treatment was Microsoft's spend on research and development which would be increased from US$9.1 billion last year to US$9.5 billion this financial year, he said, meaning the company would remain the biggest R&D spender in the IT sector.

In the past Microsoft has angered customers when major software upgrades have been delivered late but Liddell said a "defining feature" of the company over the past few years had been its ability to deliver products when they were promised.

He said the business was also focused on doing what it could to grow its market share because companies that added customers in lean times gained a disproportionate advantage when the economy improved.

MICROSOFT MANTRA

Chris Liddell's business survival tips:

1.Focus on cash

2.Streamline the cost structure

3.Drive operational excellence

4.Compete for market share

5.Invest in innovation