Costs at Microsoft (MSFT)

Microsoft's (MSFT) second quarter earnings revealed a continuing trend of reducing the percentage allocated to research and development (r&d) and increasing the percentage allocated to sales and marketing.

When I started studying the expense structure of MSFT in 1999, I was amazed to see that over 17.5% of the revenues and 32% of the expenses were dedicated to r&d. These numbers have dropped considerably to r&d now consuming 14.5% of the revenues and 23% of the expenses.

Sales and marketing expenses, meanwhile, have risen from 17.5% of the revenues and 32% of the expenses to a current 21% of the revenues and 34% of the revenues.

These trends seem to indicate a long-term pattern of large companies, regardless of industry, whose resources are increasingly dedicated to the purchase of smaller companies whose products are then sold through a massive distribution system.

Most notably, as a commentary on today's environment, the general and adminstrative (g&a) costs were cut dramatically. G&A costs were a paltry 4% of revenues and 8% of costs back in 1999, before rising dramatically to 11% of revenues and 18% of costs in 2005. Now, in a return to pre-housing bubble euphoria, g&a costs are back to 5% of revenues and 9% of expenses. Who said that these aren't good times?