NEW YORK (CNN/Money) - Microsoft Corp. plans to increase research and development spending by about $900 million, or 20 percent, in the fiscal year that began this month, and also plans to increase its job base by 5,000 employees, Chairman Bill Gates told financial analysts Thursday.

Gates said the company believes the long-term outlook for the technology industry is bright, and that investments the company is making in the coming year should help fuel future growth.

"We've always taken a long-term approach to our business, even in times of economic challenge and uncertainty," he stated.

Gates said the company will increase its employee base by 5,000 during the coming year, an almost 10 percent boost over its current work force of 50,500. While large job cuts have been common in recent years, Microsoft's announcement is the biggest hiring move since the boom days of the late 1990s, said John Challenger, CEO of outplacement firm Challenger Grey & Christmas.

"It's a good sign in the face of all these tech cuts," Challenger said. "I'll bet they can really access great talent right now. To bring that many people into the company when pickings are really good, it should be a real lift for the company."

Gates also said R&D spending this year will increase to $5.2 billion, which he said is 16 percent of company revenue. Microsoft spent $4.3 billion on R&D in the fiscal year ended June 30.

The fiscal 2002 R&D spending was down about a 2 percent from the previous year. A $900 million increase would be the company's largest one-year jump in R&D spending, and the biggest percentage increase since a 27 percent gain in the year ended June 30, 2000.

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Gates did not provide details of where the hiring and additional R&D dollars would go, other than saying that an important part of its effort will be incubation projects, in which small teams of employees are formed to flesh out ideas for new products and ultimately create a prototype.

Microsoft, the world's largest independent software company, recently slightly lowered its revenue and earnings target for the current fiscal year. It said it expects revenue of $31.4 billion to $32 billion, rather than its guidance in April of $31.5 billion to $32.4 billion. And it said it expects earnings of $1.85 to $1.91 a share, rather than its earlier target of $1.89 to $1.92 a share.

The company shouldn't have any problems funding any increase in capital spending -- it is one of the world's most cash rich companies, with $38.7 billion in cash and short-term investments on its balance sheet as of June 30, up $7 billion from a year earlier.

Shares of Microsoft (MSFT: down $2.43 to $43.80, Research, Estimates), a component of the Dow Jones industrial average, were lower at midday Thursday.