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.

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