Microsoft Cuts R&D

TechFlash reports: A closer look at Microsoft's earnings report from last week shows that the company spent $8.7 billion in research and development in its recently completed fiscal year -- about 3 percent less than it spent in the prior year. It's the first time in five years that the company has reduced its R&D spending.

The trend appears to reflect Microsoft's efforts to continue keeping a close eye on expenses even as it exits the recession.

At the same time, Microsoft's spending on sales and marketing rose 3 percent for the year, to $13.2 billion, thanks to some big product launches. Microsoft pointed specifically to "increased advertising and marketing of Windows 7 and Bing and increased sales force expenses related to Windows 7."

The decrease in research and development spending wasn't a huge surprise, given that payroll and employee benefits are two major components of the R&D budget. Microsoft employed 88,596 people as of the end of the 2010 fiscal year, on June 30, a decline of more than 4,000 people from the same point a year earlier.

Officially, the company said in its earnings release that the decline in R&D spending reflected "a decrease in third-party development and programming costs and increased capitalization of certain software development costs." Lower headcount costs also were cited for reducing annual R&D costs in areas including the Microsoft Business Division and the Server & Tools Division.

Microsoft's $8.7 billion in R&D expenses for the 2010 fiscal year represented 14 percent of the company's $62.5 billion in annual revenue. That was down slightly from the previous year, when the R&D expenses of $9 billion represented about 15 percent of its revenue, roughly in line with its traditional ratio.