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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 centrepiece here is the storage engine that will be integrated in the third wave [and] is being pioneered in SQL Server," Gates said.
Jim Allchin, group vice-president of platforms, said that sales of Windows XP have driven financial growth, particularly as a result of volume licensing. While industry PC growth is down 4% this year, Microsoft is up 16% in client revenue. "I don't know of a time when more copies of Windows were shipping," Allchin said.