Microsoft Corp.’s Bill Gates kicked off the company’s annual Financial Analysts Day in Redmond, Wash., Thursday by announcing the company will boost R&D spending by 20 per cent from US$4.3 billion in FY 02 to $5.2 billion in FY 03.

The planned spending brings Microsoft back in line with previously announced R&D investment levels. In July 2001, Gates announced at Microsoft Research Faculty Summit that the company would spend $5.3 billion on R&D over the coming year in 2002.

Despite the tough economy, Gates said the investment reflects his optimism in the “second wave” of products on Microsoft’s horizon, which include Longhorn, Yukon, and future releases of Office, Visual Studio, Exchange and MSN.

Although Gates did not commit to time frames, Microsoft’s initiatives in the database arena will feature prominently in future R&D spending, such as building a unified data store around Yukon. “The center piece here is the storage engine that will be integrated in the third wave [and] is being pioneered in SQL Server,” Gates said.

Echoing Gates’ optimism, Jim Allchin, group vice-president of platforms, said in a speech following Gates’ that sales of Windows XP have driven financial growth, particularly as a result of volume licensing. While industry PC growth is down four per cent this year, Microsoft is up 16 per cent in client revenue. “I don’t know of a time when more copies of Windows were shipping,” Allchin said.