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Ballmer Talks Up Microsoft Stock

Posted on: Sunday, 31 July 2005, 12:00 CDT

Microsoft's chief executive, Steve Ballmer, has made a determined effort to convince financial analysts that the world's largest software publisher would again become a growth stock.

At Microsoft's annual briefing for analysts at its headquarters here on Thursday, Ballmer sketched a portrait of the company's endeavors centered on "anchor businesses" like its Windows operating systems for personal computers and servers and its Office productivity software that would continue to grow "robustly" through the end of the decade. He also pointed to growth potential in newer areas like Microsoft's video game business and software for cellphones, interactive television and Web searching.

"We're not the kind of company that will get out here and make weird projections," he said in a morning talk that led off a series of management presentations on the company's businesses. "But I do know that the opportunity we have for growth is phenomenal."

Microsoft's top executives have become increasingly frustrated over the past five years as the company's stock first declined and then remained flat while some of its competitors' shares soared.

Several analysts said Thursday that Microsoft would be hard- pressed to make the case for growth until it established a positive market reception for new versions of its Windows and Office programs, due in the second half of next year.

Microsoft's shares have traded from $23.82 to $30.20 in the past year

Ballmer said he has had trouble selling the long-term value of Microsoft stock, even to the company's own employees.

"Are you buying our stock?" he said he had asked a group of his executives, but there were no takers. "All the hands stayed down."

But he said the company was convinced that the stock was undervalued. Over the past 12 months Microsoft has bought back more than $8 billion worth of its stock, part of a four-year plan meant to buy back 10 percent of the market value, now $275 billion, he said.

Ballmer pointed out that since 2000, when the company was fighting a bitter federal antitrust case, it had actually increased its market share among the industry's top 25 information technology companies.

"We have won on the desktop and in business," he said.

From 2000 to 2005, Microsoft has increased its share of industry operating income to 23 percent from 18 percent.

To pick up the company's revenue pace, he said, Microsoft was planning higher-priced "premium" versions of Windows and Office, but he gave few details about features.

He also said Microsoft would continue to acquire relatively small companies to help it innovate, and would not rule out acquisitions as large as $2 billion

On Wednesday, the company shipped the first public test copies of the next version of the Windows operating system, now known as Windows Vista, to outside software developers. The program, which is roughly three years late to market, by some estimates, will go through two long test programs before being commercially available in the second half of 2006.

On Thursday, Microsoft gave an extended demonstration of the program to the financial analysts, pointing to advantages like a unified version for corporate users rather than multiple versions to address various needs within a company simplifying the job of corporate information technology managers.

Many features shown on Thursday are ones already introduced in Apple Computer's new Tiger operating system.

During the morning briefing, Microsoft executives acknowledged that the popularity of the Apple music player iPod had indirectly helped sales of Macintosh computers.

"The halo effect enabled them to go after PC users and sell them Apple products," said Will Poole, the Microsoft executive in charge of desktop operating system products.

Thursday's meeting was the first in the 17 years of the event in which Bill Gates, Microsoft's co-founder and chairman, did not offer an overall vision of the company's business strategy. Instead, he took part in an onstage interview with his chief technology officer, Ray Ozzie, and a University of Washington computer scientist, Ed Lazowska.

The company said Gates had decided on an informal format as a way to talk about a range of industry trends.

Source: International Herald Tribune

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