Ballmer defends record, future changes for Microsoft
The Microsoft chief executive looks back and looks ahead at the company he’s leaving, while some of his top lieutenants provide some detail of a company transforming into a devices and services enterprise.
Seattle Times technology reporter
In what was likely his last presentation at one of Microsoft’s regular meetings for Wall Street analysts Thursday, Chief Executive Steve Ballmer delivered a defense of his big bets and a passionate case for the company’s future.
He was aided in the effort by Microsoft’s other top executives, who offered insights into how the company was transforming itself from a software developer into selling devices and services.
“We built a heck of a good company,” Ballmer said. “We make a ton of money. We’re very proud of that.”
He also said he wanted his audience to understand “how uniquely poised Microsoft is, I think, to drive the next big thing.”
Ballmer didn’t specify what he thought the next big thing would be but said he expected it would involve hardware that includes more natural ways of interacting with products; cloud infrastructures and applications; and serving both corporate and consumer customers.
Ballmer’s speech came toward the end of the financial analysts meeting Thursday afternoon at the Meydenbauer Center in Bellevue. The meeting was closed to the media but streamed on the Web.
Company leaders said upfront they would not talk about the search for Microsoft’s next CEO.
Ballmer announced in August that he would retire within 12 months, once his successor is found.
Though most of what was said Thursday was already generally known, two bits of news did emerge.
Microsoft leaders hinted that Office may be coming to non-Windows platforms.
“We are working on touch-first versions of our core apps in the Office suite,” said Qi Lu, head of the company’s Applications and Services division.
“We will bring these apps to Windows devices and also to other devices in ways that meet our customers’ needs and the customer value of those experiences, and in ways that economically make sense for Microsoft, and at a proper timetable,” he said.
Ballmer further hinted at that, saying “we don’t have our heads in the sand” regarding the need to have Microsoft services on other platforms, such as Apple’s iOS and Google’s Android, which have far more market share.
Microsoft has only about a 3.3 percent worldwide share in smartphones and a 4.5 percent share in tablets.
“We love Windows. Windows is first,” Ballmer said. “But we’re also eyes wide open and being, I think, pretty smart in taking a look in developing for other platforms.”
The company also outlined its new financial-reporting structure.
It’s designed to better align Microsoft’s financial reporting both with the company’s huge reorganization announced in July and with its move toward focusing on devices and services.
Microsoft will report on five main segments, divided into either the business or the consumer category.
The consumer category — called Devices and Consumer — will include:
• Hardware (Surface, Xbox and Xbox Live, and other hardware)
• Licensing (Windows device manufacturers, Windows Phone, Office consumer, and intellectual property)
• Other (Bing and MSN, Office 365 Home Premium, first-party video games)
The business category —- called Commercial — will include:
• Licensing (Windows enterprise, server products, Office for businesses, Dynamics, unified communications)
•Other (Enterprise services, Office 365, Azure)
Chief Financial Officer Amy Hood said the company will report revenue and gross margin for each of the five segments, and operating income for the two broad categories.
Microsoft said it would offer more details on the reporting structure in a Sept. 26 call.
“A lot of things have happened at the company” recently, Sid Parakh, an analyst with investment firm McAdams Wright Ragen, said in an interview after the meeting.
The meeting “was a good way to kind of get up to speed on what they’re thinking. But a lot of things are still up in the air. ... The new reporting structure is somewhat welcome. But details are short.”
That call next week should offer more clarity.
“When we see what the reporting structure looks like, it should allow us to get a better feel for what’s happening with the cloud, what’s happening with devices, things like that,” Parakh said.
“We understand the prior set of numbers” based on the old financial reporting structure, he added. “To be able to port the understanding of that prior set of numbers to the new one is the challenge for us.”
During the meeting, Ballmer did acknowledge some big obstacles Microsoft faces.
“Windows has some challenges,” he said. “For the first time over the last couple of years, Windows has done something other than just grow.
“We understand the shift that’s going on in the market,” Ballmer said, referring to the big decline in PC sales and the rise in sales of tablets and smartphones.
“Mobile devices — we have almost no share,” he said. “I don’t know whether to say that with enthusiasm or kind of uncomfortable tension. But I’m an optimistic guy. Anything we have low market share sounds like upside opportunity to me.”
Ballmer had the final say when an analyst asked why financial markets didn’t recognize the “bold bets” Microsoft had made.
Microsoft shares have remained largely flat for the past decade, even as competitors’ share prices have soared.
Ballmer, who had earlier shown a slide comparing Microsoft’s profits and financials with other tech companies’ over the past 10 years, reiterated that the company has “plenty upside.”
“Should the market just believe?” he asked. “I can’t argue that. What I can say is the ultimate measure of the place has got to be what happens with profit. It’s got to be the ultimate measure of any company.”
Janet I. Tu: 206-464-2272 or firstname.lastname@example.org. On Twitter @janettu.