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Wednesday, November 10, 2004 - Page updated at 10:14 A.M.
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Microsoft plays up growth, dividend

By Brier Dudley
Seattle Times technology reporter

MIKE SIEGEL / THE SEATTLE TIMES
Microsoft Chairman Bill Gates, who is also the company's chief software architect, spends a few minutes signing autographs after the annual shareholder meeting yesterday at the Meydenbauer Center in Bellevue.
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They were preaching to the choir, but Bill Gates and Steve Ballmer still did their best to sell the virtues of Microsoft stock at the company's annual shareholder meeting yesterday in Bellevue.

A highlight of the meeting was shareholders' approval of a special $3 dividend, a historic payout that will distribute $32 billion of the cash Microsoft has accumulated.

Executives also used the gathering to talk up the business, pitch new products and explain how they're tackling competitors such as Linux and Google.

"I think people actually miss it, but we had the second-largest year-over-year growth in profits, operating profits, in company history," said Ballmer, the chief executive.

"People like to think back wistfully to the good old days — whatever that meant — of rapid growth. We grew more year over year in fiscal year '04 than in any other year, save one, in our company's history, and that really says a lot."

Investors politely applauded and voted in favor of the dividend, payable Dec. 2 to shareholders of record on Nov. 17. But several pressed executives to explain why the stock price has foundered.

"I've been very impressed with the financial, technical results of the company and Steve's enthusiasm but not the stock performance," said Tom Bass of Bellevue. "Can you explain why the stock seems to be stuck?"

One factor is Microsoft stock fell after the tech bubble burst, but not as far as some other tech stocks, said Chief Financial Officer John Connors.

"We haven't dipped nearly as far, so we haven't seen maybe the percentage rally that a few other big-cap tech companies have had. But we've performed fairly well," he said.

Ballmer said it's hard for the company to post a dramatic rate of growth since its absolute growth is so large nowadays.
 
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"There's a law of large numbers phenomenon, where it's hard to surprise anybody when we're delivering 16, 17 billion, whatever the magic number will wind up being, of operating income," he said.

"But at the end of the day, if we keep innovating, we keep driving revenue growth and operating-income growth, the stock price does have to reflect it."

Gates, chairman and chief software architect, touted products such as OneNote, a note-taking application, and progress on security improvements and e-mail spam filtering. He also talked about the company's leadership with the Tablet PC and speech-recognition software.

Gates also acknowledged that Microsoft has fallen behind in online search and digital-music services "and we need to make sure that we come along and do an even better job than they do."

"We'll always have a mix of activities like that, ones where we're out in front and ones where we've got very strong competition," he said.

None of the executives mentioned Google, the current superstar technology stock, but Ballmer emphasized the work Microsoft is doing to catch up in the search business. He said "there is a heck of a lot of great new innovation coming" in search and "we will catch up, we will surpass and that will allow us to drive growth in our advertising revenues" and double sales over the next five years.

The executives' message resonated with at least some of the 1,100 investors in the audience at Meydenbauer Center.

"The whole tenor of the presentation was reassuring, I'm guessing, to everybody in the room," said investor Al Hopwood of Renton, who attended with his wife, Becky.

Hopwood had thought about cutting back on his Microsoft investment but the meeting persuaded him to hold the shares.

"We were uncomfortable with the size of our holding but now we have more comfort," he said. "It's a disproportionate percentage of our portfolio, and we were considering reallocating. Now we're going to have a business meeting."

Janice Jarosz of Ravensdale, whose Microsoft investment did well enough in the past to help her buy property, plans to use her dividend proceeds to buy more shares.

"I'm going to reinvest all of it," she said.

Wall Street also reacted favorably. After the dividend vote was announced, the stock closed at a 52-week high of $29.77, up 49 cents, or 1.67 percent. It was Nasdaq's most active stock yesterday.

The dividend was one of several proposals put to shareholders.

They also re-elected the company's board of directors and approved its choice of auditors, Deloitte & Touche. They approved the special dividend as part of a package of changes to the company's retirement plan, which will adjust outstanding employee stock options and awards to reflect the stock's post-dividend price.

More than 98 percent voted in favor of the auditor choice, while the dividend votes — altering the retirement and compensation plans — were approved 94 percent and 95 percent, respectively.

Brier Dudley: 206-515-5687 or bdudley@seattletimes.com

Copyright © 2004 The Seattle Times Company

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