updated 8/18/2006 1:12:46 PM ET 2006-08-18T17:12:46

Microsoft Corp. is switching tactics in its $40 billion stock buyback program after only about $3.8 billion worth of shares were tendered in a “Dutch auction” offer that expired Thursday, well below the $20 billion it had been prepared to spend in the auction.

The world’s largest software company now says it will add up to $16.2 billion to its long-term, traditional repurchase program, almost doubling that plan’s repurchase authorization to $36.2 billion through June 30, 2011.

Microsoft has been sitting on a huge pile of cash that it didn’t think it needed immediately for things like legal expenses and acquisitions. As of June 30, the end of its fiscal year, Microsoft had $34.16 billion in cash and short-term investments.

(MSNBC.com is a Microsoft-NBC Universal joint venture.)

In July, the company said it planned to repurchase as much as $20 billion worth of shares by Thursday in a sort of reverse auction. On Friday, Microsoft said it will only be buying about $3.8 billion worth of shares in that “Dutch Auction.” That’s about 155 million shares, or 1.5 percent of the company’s stock, at $24.75 a share, which is the top end of the range it had planned.

But in July, Microsoft also said its board had authorized it to spend another $20 billion on more traditional stock repurchases by June 2011, and that is the program it increased on Friday. It also said in July it had already completed a previously announced $30 billion stock repurchase program.

Stock buybacks generally boost a company’s share price because they lower the number of outstanding shares available on the market.

The July buyback announcements came on the heels of a 24 percent drop in fourth-quarter earnings to $2.83 billion, or 28 cents per share, despite a 16 percent increase in revenue to $11.8 billion. The company had warned of the lower earnings in April, saying the drop was due to plans to boost research and development spending in areas where it is not dominant.

Copyright 2006 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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