WSJ reports on Microsoft’s Ballmer sending another of the company’s letter/note thingys.
(as an aside, this is amongst the few original things m$ has done, this idea of sending open letters/notes)
(ohh, wait, Gutenberg must have done this too)

I can only hope to fully understand the business dynamics behind such a strong step.
A billion here or there isn’t a big thing, for a company sitting on ~56.4 billion dollars. However, the very fact that Microsoft has had to publicly accept the idea of cost cutting means how mature it’s products and technologies have become.

For a second, forget Linux, forget Apple, forget Oracle, forget IBM, forget 2 billion dollars Sun, forget Real networks. Forget any real competition.

Look at whats left … the core products Microsoft deals with, and the core technologies they rely on.

Office Mature.
Office is their cash cow, however much the Windows desktop or server groups moan and complain. Plain and simple. This product is not only being let down by it’s installed base that refuses to pay more for the next version sans innovations, it is also being let down by feature bloat within existing modules.
An example: Infopath is good, no doubt, worth the upgrade? Hell no.
Windows This product comes in a close second in terms of how much money Microsoft can make on it. Might be Microsoft is known as the company that makes Windows, their accountants would rather love Office (see above).
However, there are only a certain number of copies of Windows that can be sold; basically, equal to the number of PC desktops and laptops sold in a given quarter (minus the desktops sold with lindows, etc, etc).
Visual Studio Visual Studio is more important to Microsoft to support itself into the future. More like someone laying their own roads for the next version of their cars (come to think of it, kinda cool!).
However, Visual Studio is a strong driver of the gospel according to Microsoft and has critical strategic importance. Worst-case: Lets just call it a loss-leader.

Soooo, whats this mean?
From my perspective, this call to cut costs (mind you, no firing, and no changes to hiring schedules) is more of an internal wake-up call. Sort of like a warning “We haven’t cut workforce yet. Not that we would, but we could”
Externally, this will give a boost to Microsoft share prices over a monthly/quarterly period. After all, which investor doesn’t like seeing cost cutting efforts underway.
Right now is the best time for Microsoft to advertise their efforts, rather than in the middle of a major virus attack or Longhorn release (same thing ;-) ). This way, no one can fully blame them for first writing buggy code, and then “cutting-back” on development when times comes to clean up their code.
They settled some big issues (well, 2 billion Sun is big). Got a few patents (again, more as a scare tactic, not an immediate licensing strategy). It’s going to be a good summer for them, if you ask me.