REDMOND, Wash. -- Even as its stock hit new lows this week,

Microsoft

(MSFT) - Get Report

urged investors Thursday to be patient. Be patient as the software colossus spends more on research and development, hires more staff and gives employees raises this year while competitors are doing just the opposite, Microsoft executives said during its annual meeting with financial analysts.

Be patient because this is Microsoft, and with $39 billion in cash on its balance sheet, the company has the luxury of focusing on its long-term future, even as investors worry day to day about what the stock is doing.

"The question you might ask is, are we nuts? Are we nuts? Is this as

CEO Steve

Ballmer says, 'the mad dog investment company?' " asked Microsoft Chief Financial Officer John Connors. "If we do a good job, if we're focused, if we execute, we might look back two, three years from now and say the brilliance of

Chairman Bill

Gates and Steve and their ability to think long term and their ability to risk the short term and sacrifice the profits was absolutely the right thing to do for investors."

During the day, Connors and others offered more details on the extent of that investment in fiscal year 2003, which began July 1. In his morning speech,Gates said Microsoft plans to raise research-and-development spending by more than 20%, to $5.2 billion in fiscal year 2003 from $4.3 billion last year. That represents more than 16% of revenue.

In a press release, Gates also said Microsoft plans to hire more than 5,000 people over the next year. Current employees are getting raises, too.

Some of the employee growth will come as Microsoft tries to sell to more corporate customers, competing against the likes of database giant

Oracle

(ORCL) - Get Report

.

Connors noted that last year Microsoft expected its enterprise business to grow more than the 6% ultimately reported this year. To win over more enterprise customers, Microsoft is planning to boost its server salespeople by 22%, its sales account managers by 15% and its developer salespeople by 47% in the next fiscal year.

Microsoft also is planning to spend more than $200 million on a worldwide ad campaign aimed at corporations.

And then there are new product launches, including the Tablet PC, a new MSN subscription service, a new version of Office, and the Windows XP Media Centeraddition.

Connors said Microsoft will continue to invest, despite the whopping $9 billion investment-impairment charge taken by the company in the past two years.

The difference, Ballmer elaborated, is that Microsoft will make sure partnerships offer more revenue and profit upside.

"We got a little bit off our compass," Ballmer said, acknowledging the company got caught up in the dot-com euphoria and some of its early successes.

Microsoft also has used its cash to significantly step up its stock-repurchase program to 128 million shares, worth $6.9 billion in fiscal year 2002, from 55 million shares, worth $4.9 billion in fiscal year 2000.

As far as more acquisitions, Gates and Ballmer said they examine the value of other software companies systematically, looking at 30 to 40 companies daily.But the hurdles of integrating a new company, employees, code base and architecture are considerable, Gates said.

"I imagine we'll do some acquisitions. I don't know ifwe'll do any large ones in the next year," Gates said.

"We love buying little things," added Ballmer.

Although Microsoft is projecting revenue growth of about 12% in fiscal year 2003, Connors tried to assure the audience of about 300 analysts and fund managers that it is still a growth company.

"Compared to these guys in the last 12 months, yes we are," he said, referring to a slide presentation showing declines by competitors

Yahoo!

(YHOO)

, Oracle,

Sun Microsystems

(SUNW) - Get Report

,

Cisco Systems

(CSCO) - Get Report

, and

IBM

(IBM) - Get Report

.

But that's becoming a tougher sell to investors, some said. Still, it's hard to quibble with the comparisons, others said. Thomas Weisel Partnersanalyst David Readerman said $3 billion in revenue growth off an approximately $28 billion base isn't bad when other companies are suffering year-over-year declines of 50%. He has a buy rating on Microsoft; his firm hasn't done banking with Microsoft but he owns shares.

"I'll take growth" in this environment," echoed Tony Ursillo, an analyst at Loomis Sayles & Co., which manages $10 billion in equities and owns Microsoftshares. "The product pipeline, whether it relates to .NET or other ventures, is as robust and exciting as anything in software."

Microsoft spent the previous day evangelizing about its .NET venture, updating analysts about its progress since its launch two years ago and emphasizing its long-term vision.

Attendees gave Microsoft high marks for clarifying what .NET is, but some still grasped for signs of how it would translate to revenue.

".NET is the platform on which we are building a new foundation for connecting systems, people, devices and information," Ballmer said. Microsoft's .NET initiative is built around XML (extensible markuplanguage) standards that allow disparate systems to communicate with each other.

Microsoft described three "waves" of software based on its .NET architecture. The "now wave" involves launching the Tablet PC and new versions of Office and MSN over the next year. The second wave, dubbed Yukon, will mean delivering storage breakthroughs to Microsoft's SQL server database product, which offers the ability to search through multiple applications. It's a product that competitor Oracle also is launching. And the third wave, named Longhorn, will entail incorporating the storage and single search into the Windows operating system.

Microsoft, however, has not provided a schedule for delivering on the second and third waves. And when asked by one analyst how .NET translates to revenue and helps decouple Microsoft's future from the future of the PC, Ballmer's answer was more nebulous.

"It enables new opportunities, but in and of itself, it's more of a retooling of the business," Ballmer said. "It is a share shifter. It is a new opportunity enabler over time but it's in no way disjointed from thePC market."