Craig Mundie, Microsoft chief research and strategy officer, said Americans seeking to update their technology skills should look to the nation's community colleges for training.

Mundie took a break from the company's Government Leaders Forum -- Americas on Wednesday to talk with me about global competitiveness, the government IT spending environment, prospects for cloud computing in government IT portfolios and more.

Earlier in the day, Mundie talked to the gathering of Latin American governors and ministerial-level leaders about using technology to improve health care and education. Microsoft Chairman Bill Gates is scheduled to address the group, meeting in Leesburg, Va., on Thursday.

Here are edited excerpts from my talk with Mundie:

Q: You remarked on the idea that technology has been a great global leveler, contributing to developing nations' transition from industrial and agricultural economies to knowledge-based economies. What's available for people in this country who are facing layoffs now and want to compete on that global playing field that technology creates?

From today's paper, a profile of Kirill Tatarinov, corporate vice president in charge of Microsoft Business Solutions:

Even with somewhere north of $1 billion in annual sales, Microsoft Business Solutions is dwarfed by the enormous Office business that it shares space with in the company's quarterly reports.

But Kirill Tatarinov, the group's leader since July 2007, said MBS brings more to the broader Microsoft than revenue from its Dynamics-branded systems, which manage a company's customer relationships, suppliers, inventory and other business basics.

It provides a "proof point to business decision makers" using the whole set of Microsoft server technologies, Tatarinov said. The Dynamics products "take advantage of all the innovation that's happening" on Windows Server, Visual Studio, Office and other major products Microsoft sells to businesses.

If you didn't get enough strategery from Tuesday's Microsoft strategic update, check out CFO Chris Liddell's presentation this afternoon to the Goldman Sachs Technology and Internet Conference. Launch the Web cast, which begins at 1:15 p.m. Pacific, right here.

With Microsoft's Redmond campus largely emptied out for the winter holidays, CEO Steve Ballmer crunched the numbers on the proper level of spending for his company against the current economic climate, which he has repeatedly referred to as a "reset" rather than just a recession. Ballmer said his own estimates for the weakness and duration of the downturn tend to be more severe than those of other business leaders he meets.

With that in mind, he settled on $27.5 billion of operating expenses -- a level the company aims to hold relatively steady through the current fiscal year, which ends June 30, and during its 2010 fiscal year. Ballmer made clear to financial analysts meeting in New York this morning for the company's annual strategic update that cutting back even more significantly -- say to $20 billion -- would be "imprudent."

"I think this is right," Ballmer said.

That should give some comfort to those wondering if the modest layoffs Microsoft announced last month were the beginning of a more significant reduction. Wall Street analysts and investors are pressuring companies in every industry to continue cutting costs as sales and profits slow dramatically.

The strategic update call just came to an end. Ballmer gave a detailed look at seven major business areas for the company. Check back here later this morning for more details.

Update, 7:50 a.m.: As he told Congressional Democrats earlier this month, Ballmer said Microsoft's corporate strategists have been evaluating past downturns -- particularly those driven by "deleveraging." The team read company annual reports from 1927 to 1938 to determine who did a good job managing through the Great Depression. "RCA, God rest them in peace, became our role model," Ballmer said. The company was able to dominate the television business because it continued to invest during bad times, he said.

Then he broke down how Microsoft plans to invest.

Here's an annotated version of today's print story on software vendors adding tools to track energy and environmental data to their business software:

With businesses scrambling to reduce their energy use -- both to save costs and limit their carbon footprint -- Microsoft and other software vendors are building tools that make tracking environmental data easier.

Today, Microsoft is releasing a free add-on to its enterprise resource planning (ERP) software for midsized businesses.

With documentation and early code going out to select testers this week, another Microsoft guessing game is gaining favor: When will the company ship the next version of Office, known as Office 14?

Earlier guesses had the company aiming for a dual Office-Windows release, as it has in the past. But speculation today points to a 2010 Office release. (Windows 7 is expected by many pundits to ship sometime later this year -- despite Microsoft's official position that January 2010 is the target.)

I had a chance to ask Justin Hutchinson, group product manager for the Office client team, about the schedule for the product last Thursday at the Consumer Electronics Show.

Q: Is there any kind of goal to have Office in step with Windows 7 as Microsoft has done in the past?

Mini-Microsoft has drawn an ominous red circle on his calendar around Jan. 15. That day, the anonymous, unsanctioned company blogger suspects, could bring news of a substantial round of layoffs at Microsoft. While his post of last week (just after I stepped out for vacation) is clearly labeled as rumor, even the thought of cuts at one of the region's biggest (and heretofore most stable) employers can only send shivers down the spine of Seattle's cold and wet economy.

MICROSOFT

Meet the new boss: Former Yahoo Qi Lu to lead Microsoft Online Services Group.

Brian McAndrews, senior vice president of the Microsoft Advertiser and Publisher Solutions group, is leaving the company, Microsoft said in a statement.

Updates throughout at 1:59 p.m.

Microsoft and open-source purveyor Novell are marking the second full year of their interoperability partnership, which surprised some in the software industry when it was announced Nov. 2, 2006. "This is almost like the lion and the lamb laying down together," analyst Laura DiDio told me at the time.

At 7 a.m. today, Google announced on its official blog that it was scrapping its partnership with Yahoo on search advertising:

"[A]fter four months of review, including discussions of various possible changes to the agreement, it's clear that government regulators and some advertisers continue to have concerns about the agreement. Pressing ahead risked not only a protracted legal battle but also damage to relationships with valued partners. That wouldn't have been in the long-term interests of Google or our users, so we have decided to end the agreement."

Dan'l Lewin, corporate vice president of Microsoft's Strategic and Emerging Business Development, has a good view of the tech startup climate from his post in Silicon Valley, where he helps get Microsoft's tools into young companies' hands.

He shared his observations and more about the announcement today of the "BizSpark" program, giving qualified startups three years of access to an array of Microsoft software for $100 (story, program site), in an interview yesterday.

Here are condensed excerpts:

LOS ANGELES -- In addition to the online services components of Windows 7, Microsoft is announcing plans to provide online versions of its other highly lucrative products: Word, PowerPoint, Excel and OneNote that will run in a Web browser.

LOS ANGELES -- Bob Muglia, senior vice president of Microsoft's server and tools business, shared his expectations of the impact Microsoft's new services platform will have on company profit margins, where he sees opportunities for collaboration with Amazon.com -- the company's biggest cloud competitor not named Google -- and more in an interview earlier today.

Check out these edited excerpts of our conversation. I've put the particularly interesting bits in bold for easier scanning.

LOS ANGELES -- Good morning from Microsoft's Professional Developers Conference. While the big headline for the show this week will likely be Windows 7, the company's strategy for cloud computing is a close second. The cloud strategy will get most of the attention today, with a keynote speech from Microsoft Chief Software Architect Ray Ozzie, set to begin in about 90 minutes.

For background, check out this story from today's paper, which notes the competition Microsoft faces to attract software developers -- the primary audience at this show -- to its emerging cloud computing platform. Formidable competitors in the form of Amazon, Google and other smaller players are also vying for developer attention.

Microsoft Chief Financial Officer Chris Liddell said one upside to the bad economy is the company's ability to make acquisitions on the cheap.

Interesting essay this morning from Eric Jackson at TheStreet.com on the choice and challenge facing Microsoft CEO Steve Ballmer.

"More than ever, Microsoft shareholders are wondering where Ballmer is leading the company. Will Microsoft be a large cash-cow conglomerate that pays a nice dividend and grows much more slowly?

"Will it make a splashy and expensive acquisition of Yahoo!, Research In Motion, or SAP to try to keep up a faster rate of growth? Or will it be stuck in the middle of those two very different strategies, trying to do both?"

Markets are rallying this morning (major indexes up around 4 percent in early trading) in response to efforts by governments around the world to guarantee lending and calm last week's financial turmoil. But even if this is the beginning of the end of the beginning, enterprise software companies including Microsoft are in for a painful hangover, according to analysts at Friedman Billings Ramsey.

Microsoft wants to "democratize" business intelligence software so that everyone who does office work can know when they're missing their quarterly targets, not just the 10 to 25 percent of employees who do now. At its business intelligence conference in Seattle today, executives laid out their strategy to expand usage of this category of software.

Following up on yesterday's report from Microsoft's company meeting, during which CEO Steve Ballmer shared his views on the company's mobile strategy, here are some other tidbits gleaned from folks in attendance:

Microsoft Chief Operating Officer Kevin Turner, on stage this afternoon in Bellevue at an event to build buzz around its virtualization software, gave a broad introduction to the company. One thing that caught my attention: He said the company's vision has changed. It used to be some variation of "a computer on every desk" -- the original goal Paul Allen and Bill Gates set out some three decades ago.