Last Friday, shares for Microsoft Corporation dipped to almost 13 percent – the company's biggest drop in five years. Analysts attribute the drop to the company's decision to boost research and development spending. An e-mail to Microsoft employees however reveal that company CEO Steve Ballmer is still positive that Microsoft's position as a strong and robust company is pretty much secured.

In the email, dated Friday, April 28, 2006 5:12 PM, Steve Ballmer emphasized the revenue growth accelelration that the company has achieved in the first three quarters of FY 2006:

First, I want to emphasize that with revenue of $10.9 billion, we turned in a record third quarter. That's a growth rate of 13 percent, continuing a trend of revenue growth acceleration from 6 percent in Q1 to 9 percent in Q2 and now 13 percent. In addition, we returned $5.8 billion in cash to shareholders through our stock repurchase program and through dividends.

Production of the Xbox 360 may have contributed to the stock drop Microsoft has experienced. Ballmer writes, “[The] cost of producing Xbox 360 consoles was higher than expected, while at the same time we decided to manufacture and sell as many consoles as possible to build on our lead in the race to be number one in the video game business.” But despite this, the CEO is still optimistic that Microsoft's next-gen console will ensure strong revenue. “At more than 3 million units sold, Xbox 360 is the fastest-selling video game console ever to reach the market,” the e-mail says. The company is targetting 5 million console sales by July, “establishing Xbox as the gaming industry leader” by the time Sony and Nintendo usher in their next-gen consoles. Ballmer is also leaning on Xbox Live to keep the company on top. “Xbox Live, which reached 1 million subscribers faster than almost any other subscription entertainment service including HBO and TiVo, remains the industry leader in online gaming, with nearly 3 million members today.” Xbox 360 and Xbox Live offer numerous possibilities for growth, the CEO points out: “The success of Xbox 360 and Xbox Live is enabling Microsoft to begin to redefine how people create, deliver and experience entertainment. And they put us in a unique position to succeed in huge new markets.”

Ballmer also tells his employees that Micrsosft may be “[facing] new competitors, faster-moving markets and new customer demands” but the company's decision to engage in 'big, bold bets' will guarantee “results that eclipse the [company's] performance of the last five.”

Microsoft CEO ended the e-mail in high note:

I believe everything that this company has delivered during its first 30 years is really just the foundation for the truly profound changes we will drive during the next 10 years. Right now we are heading into a period of tremendous opportunity that will see us drive profits and improve our position in the marketplace. We are poised to achieve strong revenue growth in core businesses, meet the challenges of disruptive business models and compete in high-growth areas. But we must be agile and smart when it comes to innovation and flawless when it comes to execution. If we do that, we will see incredible returns on the investments we've made during the last quarter and the last decade.

Whether the company picks up from its Friday slump and achieve its targets for FY 2006 is yet to be seen. As for his prediction of the Xbox 360 becoming the leader in the next-gen wars, we'll have to wait and see for Sony and Nintendo response to the said console.

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