'Hype will happen' - Gates

The Microsoft chairman said on Monday that most of the advances promised during the Internet boom will eventually come true.

"Virtually everything that was discussed, even the most hyped thing" will happen, Gates told a crowd of researchers gathered at its headquarters here for the company's yearly Microsoft Research Faculty Summit. "It just takes more time."

Gates said only the most basic business processes are handled digitally today, so many of the real productivity gains still lie ahead. "Certainly less than 10 percent of that has actually been realised," he said.

The speech echoed the upbeat presentations that Gates and Microsoft chief executive Steve Ballmer delivered to financial analysts last week.

In another part of his speech, Gates said that Microsoft has made significant progress in getting its Windows CE operating system designed into new automobiles. He predicted that within two to three years "about 30 percent of cars" will have a display system using the scaled-down software for non-PC devices that use embedded processors.

Microsoft has had better success with car makers in Europe and Asia than in North America, he added, noting that the idea of having people look at a screen while driving is "a bit more controversial" in the United States. For the US market, Gates said the company is more focused on voice-controlled technology.

Even for a company as big as Microsoft, the chairman said, there are enough new areas of growth to keep it expanding without having to move beyond its core business.

"We see enough opportunity in software," he said. "You're not going to see us buy a consulting company... We're not going to get into the chip business."

That room for growth is the reason Microsoft is boosting its research budget for the coming year by 8 percent, to roughly $6.9bn (£4.25bn), according to Gates. "I've got to prove that to our shareholders by showing that we will get more than $6.9bn back," he said.

The move comes amid clamouring by investors for Microsoft to return some of a $49bn cash hoard it has built up. However, chief financial officer John Connors said earlier this month that the company will not significantly boost its dividend until more of its legal and antitrust issues are resolved.

Gates said it is the desire to innovate for the next 10 years that has prompted the company to maintain its large cash holdings, but acknowledged there could be changes ahead. "We may have to moderate that somewhat," he said.

In a question-and-answer session following his speech, Gates took issue with the notion that a decline in computer science enrolment might be related to the outsourcing of jobs overseas.

"Basically, no," he said, adding that there are plenty of job opportunities for computer science graduates, including at Microsoft. It makes sense for Microsoft to keep most of its development efforts centralised in the United States, he added.

"We will always have the vast majority of our (major) software development here," he said. "We're not about, 'can we do the next version of Windows for 5 percent less?'"

Gates and Microsoft research head Rick Rashid did express concern that not enough women and minorities were going into computer science, with the number of women entering college computer science programs declining. "That's extremely unfortunate," Rashid said.

Gates also used the Faculty Summit event to tout the formation of Microsoft's Hardware Empowerment Program, an effort to boost the development using Windows Embedded, another embedded version of the operating system. The software is used in a variety of devices, from gas pumps to slot machines and smart golf carts. Under the new program, students and faculty will have lower-cost access to the hardware needed to develop new uses for the embedded OS.