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Originally published July 29, 2005 at 12:00 AM | Page modified July 29, 2005 at 7:32 AM

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CEO scolds Microsoft's skeptics

In an unusually subdued presentation at Microsoft's annual financial-analysts meeting, Chief Executive Steve Ballmer chided analysts for...

Seattle Times technology reporters

In an unusually subdued presentation at Microsoft's annual financial-analysts meeting, Chief Executive Steve Ballmer chided analysts for not sharing his enthusiasm for the company's prospects.

"I believe in the future of Microsoft from an innovation perspective and from a growth perspective," he said in a speech with little of his usual on-stage animation. "I believe in it, I think, more than you do, I'll be honest."

Ballmer said the company is expanding the reach of its "anchor" Windows and Office products, introducing new premium versions and spending as much as $1 billion to $2 billion on acquisitions to add new technologies.

Ballmer and other executives said aggressive sales and product-development efforts have reduced the threat from Linux, the market for Office is doubling, the new Xbox is poised to take the lead in console video gaming, and Microsoft is setting its sights on Google, Yahoo! and Internet services.

But it remains to be seen whether the pitch can win over investors, who for nearly five years have shrugged at Microsoft's steady but slower growth.

The stock barely moved yesterday after Ballmer's pitch, closing up 3 cents at $25.75, stuck within the $24-to-$29 range where it has mainly traded for years.

Microsoft's frustration with the situation was apparent at the meeting. Gone were the free espresso carts and the catered dinner. Chairman Bill Gates didn't make his regular technology-vision speech and skipped the lunch.

Then analysts found no electronic toy in their goody bag; they had to fill out evaluation forms to get their name entered in a drawing for a laptop or a phone.

"You might be thinking that Windows and server and Office are slow-growing businesses. We think that they are poised for very steady, robust growth," Ballmer said at one point, summing up years of frustration with the stock.

As for the company's other businesses, he said, "We may still have more investment to make, but they are really poised to take off. ... We're thinking we're going to be major players in every significant area, including areas like search and music. And we're thinking our future is bigger and bolder and brighter than I think many of the folks who watch us."

Analysts' response was mild.

"The CEO is much more confident about growth prospects for the 'anchor' businesses than are outsiders," Richard Royce of JPMorgan wrote in the event's online message board after Ballmer's speech. "What specific drivers of growth (units, price, services, new products, etc) are outsiders missing? Help us bridge this large perception gap."

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Between meetings, in the hallway of Microsoft's conference center, analysts still crowded four-deep around Ballmer, hoping to hear a scrap of new information about the company.

One frequent question was whether the company will increase its dividend. At one point, Ballmer hinted it won't go up like clockwork, saying he's "not really comfortable with more every year."

After Ballmer's speech, a series of executives described the prospects of each business group. Some also provided additional tidbits over lunch and in hallway chats.

Jim Allchin, group vice president of the Windows platform group, said one likely premium version of Windows will contain all the various features of the Professional, Tablet and Media Center editions in a single package.

Ballmer did fire up at the end of the day during a question-and-answer session, when asked if there was a company "jihad" against Google.

Ballmer said Microsoft will overtake the search giant and become "number one" in online search and advertising.

The company will put into that effort "all of the tenacity and all of the passion and all of the drive, particularly all of the innovation, we can bring to bear," he said emphatically.

Gates also exuded confidence, telling analysts although the new Xbox and Sony PlayStation have similar processors, Microsoft is beating its rival.

"Our Ferrari is leaving the starting line substantially before their Ferrari," he said.

The company gave some details of other products in its pipeline. Previews of the next version of Office will come in September, and the next generation of the Windows server will come in 2007.

Microsoft will add social networking technologies to its Web log (or blog) program, MSN Spaces, this fall.

The company has a vast directory of its users and the people on those users' contact lists. Using its knowledge of those connections, the MSN division will roll out a feature that allows friends to be displayed on a user's blog.

Yusuf Mehdi, a senior vice president in the MSN division, demonstrated a Web-based e-mail product under development. The program doesn't have a name yet, Mehdi said.

The mail program is being offered to select users in a private test, he said, and could be rolled out to a broader audience later this year.

Ballmer said the company is unlikely to make "blockbuster" acquisitions and will instead focus more on those costing between $100 million and $500 million.

"We have dialed up the pace of acquisitions we are making because we see so much opportunity in this business," he said.

New Chief Financial Officer Chris Liddell ended the day by highlighting the vast amount of cash Microsoft has generated since 2001 — $169 billion, of which $75 billion was free cash flow from operation.

One analyst already enthusiastic about the stock, Jonathan Geurkink at Ragen MacKenzie in Seattle, said other analysts "are going to be more upbeat" after the presentations.

"I came away feeling like I can see lot more specifics about the products that will be driving the growth over the next few years," he said.

Ballmer didn't need to hard-sell Geurkink. "It's already my top pick right now," the analyst said.

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

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