Kara Swisher

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Microsoft Financial Analyst Meeting 2011: It’s a Windows World After All!

AllThingsD’s Ina Fried and I are being held hostage by nefarious Microsoft PR chieftain Frank Shaw in a soul-sapping ballroom in Anaheim, Calif. — within spitting distance of Disneyland’s “It’s a Small World” ride.

The agony — especially since we are about to be entertained by a series of Microsoft execs, including CEO Steve Ballmer, at its annual Financial Analyst Meeting. Yes, it is that kind of day, which included the delightful middle seat on a Southwest Airlines flight.

Here we go:

1:11 pm: There may be forward-looking statements. Well, I should hope so.

1:12 pm: Investor relations dude Bill Koefoed is reading from letters from folks about the Windows 8 look-see, which is also going on here.

It would be touching, except it is not. But I like Bill, who probably has a thankless job, so we’ll let him knock himself out!

1:17 pm: Okay, Bill, let’s move on, although making the execs tiles a la Windows Phone is a nice touch.

1:18 pm: But, no, we go over the financial results from FY11. Double-digit revenue growth, margin expansion, tons of cash, consumers love Xbox and Kinect!

So why does the stock remain so flat? It’s a mystery wrapped in an enigma, wrapped in shareholders who don’t want to give Ballmer much of a break.

Actually, it’s because Wall Street is spanking Microsoft for its slowness in the smartphone and tablet space, that Google is offering Office for free and that Windows is taking a back seat to the browser. Also that cloud thing.

1:21 pm: Most of the slides, including the agenda, have been designed to look like Metro-style “live tiles.”

Note to Redmond: While the interface scales nicely from the phone to the tablet, you may be taking it a bit far.

1:23 pm: First up, COO Kevin Turner, whose speech is call “Operating Momentum.”

He comes out like a football coach and tries to make us all greet him back. I don’t want to go all Larry David here, but one of the unwritten rules of society is that you don’t make anyone under 12 years old or not in a cult do the crowd echo thing.

But, bygones! Turner talks about the strong businesses of Microsoft, especially its Business Division, which is 32 percent of FY11 revenue. The money-losing Online unit is a paltry four percent.

1:30 pm: Turner makes some comparison related to spending, like “drunken sailors.” Say what?

Moving on …

Now for some more football-coachy stuff like “Leveraging & Accelerating Our Strengths!”

Which would be Windows, for the most part.

Next bromide: “Our Cloud Leadership is a Strength!”

Says Turner: Microsoft is “all in!”

Actually, technically, it would be “all up!”

(I am channeling Larry David today. Very innnnnteresssting. Very innnnnnteresting.)

Back to Turner, who promises a “cloud that’s right for every customer.”

1:39 pm: Microsoft really does like the Metro look. It’s freaking everywhere.

1:42 pm: Now: “Embracing the Consumerization of IT!”

There are four pillars of that, including Windows 8.

And now a bit about the growth of the costly Bing and winning in the cloud against Google.

“With Office 365, ladies and gentlemen, we now have a product” to compete, notes Turner, rather gallantly.

Also, Microsoft is smacking back VMware in virtualization.

Go team!

1:46 pm: As an aside, should the consumerization of IT really have four pillars?

1:47 pm: Time for CFO Peter Klein, whose tile reads “Our Opportunity.”

Klein looks like an accountant, which is not an insult, with a reassuring, by-the-numbers tone. It is almost lulling, as Klein’s voice often is on the quarterly calls — which always end up putting my assistant Ed immediately into the nap zone, since I listen to the calls on a speaker phone in the office.

Klein begins by pointing out that the markets in which Microsoft compete will double by 2015, including in gaming and online advertising.

It begs the question: Will Microsoft get a big slug of that?

1:53 pm: Klein goes over the various markets to underscore Microsoft will.

The first up is phone, where the company is trying to break through with Windows Phone. It’s been late, but is a pretty good offering that could become stronger with its hook-up with Nokia.

Next: The big dog of Office. It’s still big, Google or no.

Then: Business Infrastructure — private clouds, public clouds, big clouds and small clouds.

Online advertising is next, which is a weak spot for Microsoft and where it continues to lose money. Which is why Klein spends 33 seconds on it, before moving to the gaming slide.

In that arena, Microsoft does shine, with Xbox and Kinect as very innovative offerings.

1:59 pm: Latest slide from Peter Klein talks about a “balanced approach to capital allocation” with three tiles below it — “invest for growth,” “return cash to shareholders” and “balance sheet a strategic asset.”

If the live tiles in the slide were indeed buttons on a smartphone, I think many in the crowd would be pushing the middle option.

2:01 pm: Peter Klein notes the company’s Triple-A bond rating. Take that, Uncle Sam!

2:02 pm: Klein hands things over to search and online services head Qi Lu.

2:03 pm: Lu, the head of Microsoft’s online unit, is one of the uber-geeks at the company and has perhaps its hardest task.

That would be competing with Google.

While the division loses boatloads of money annually in the effort, Bing has also been a very impressive offering and has been slowly gaining share.

Winning in the space is indeed, as Qi is saying, key to its future.

He brings up the Yahoo online advertising and search partnership, which has been a bit rocky for both parties.

“We had some struggles, because the undertaking is very complex,” said Qi, noting that things have gotten better. “I have confidence we will be able to unlock the economic opportunities.”

Let’s hope so, for the Online unit’s sake.

2:12 pm: Lu says that the company said that the company now has the needed horsepower to compete. But it still needs something new. “To win in search we must break through, break through from where we are,” he said. “We cannot try to out-Google Google.”

2:17 pm: We’re posting some of the key slides from Microsoft’s analyst meeting in this companion post.

2:20 pm: I’ll admit, I checked out a bit here, in which Qi outlines the basics of what Microsoft is trying to do to develop intelligence in online search.

I have heard this speech before from him and it’s a good conceptual model. Investors, of course, only care about financial results.

The message is about “solving deep human needs and delivering compelling experiences,” says Qi.

Disconnect: Wall Street only wants revenue and profits.

2:24 pm: Still, it is nice that Qi dreams so Bing, oops, big.

Next up, Servers & Tools head Satya Nadella, who used to work for Qi.

Nadella is a smoothie speaker and he quickly launches into his spiel about a strong but lesser known part of Microsoft with $17 billion in revenue.

2:35 pm: Nadella is talking about Microsoft’s SQL Server, one of those not-so-sexy big money parts of Redmond’s business. Among those using it are Visa, which built its micropayments using SQL. The next version of the database, btw, is code-named Denali.

On to Office 365 — the cloud-based version of Office. One business signs up every 25 seconds, Nadella says.

2:38 pm: Now he’s updating on Windows Azure, Microsoft’s OS in the cloud. It’s built with enterprises in mind, he says, pointing to some recent customer wins.

Budget carrier Easyjet, for example, has an internal app for their airport workers that runs on connected devices that then talk to Azure.

2:41 pm: The strategy is a mix of public and private clouds.

“In conclusion, our cloud strategy is to cloud optimize every business,” Nadella says, before giving way to Steve Ballmer.

2:46 pm: It’s either the longest or shortest FAM, jokes a golf-shirt-wearing Ballmer.

His tile: “Our Point of View.”

Ballmer has been here for the Windows 8 event and notes how well it seems to be going so far.

“We are seeing some positive reaction,” he says, posting some of the compliments from places like the “Twitter feeds.”

2:49 pm: Ballmer has an unusual way of speaking I always forget about, even though I have heard him talk eleventy-hundred times.

It is an up-and-down, sing-song style, in which he punches the heck out of some words.

Like: “World VIEW” and “Windows is AT the center.”

Which is Ballmer’s first point, because Windows is still Microsoft’s mainstay.

2:52 pm: He runs through the key themes — besides Windows — and they include: New hardware; natural interface, cloud, enterprise and consumer; and “1st party” applications, which means Office and such.

“These form some of the core elements,” says Ballmer, trying to knit it all together and make it not seem that Microsoft is the giant, confusing behemoth that many think it has become.

Ballmer is talking about getting the slowness of “mojo” in the business applications arena, but it could be said about its Windows Phone mobile strategies.

Which is next: “We haven’t sold quite as many,” said Ballmer, but notes “enthusiasm” for the platform.

2:57 pm: “I am not saying I love where we are, but I am very optimistic about where we can be,” he says. “We just have to kick this thing to the next level.”

Actually, about 12 levels. But who’s counting? (The Larry David of tech, that’s who!)

2:58 pm: Ballmer starts the every-word-LOUD about Office.

Why not? It is a huge business for Microsoft after all these years.

Ballmer calls Office “the biggest quiet opportunity.” I will admit it: I like it when a loud dude talks about quiet.

Now an Office demo of Lync, Microsoft’s unified communications offering.

3:07 pm: It is a cool demo, especially the translation part.

The Skype acquisition gets a mention too, with Ballmer noting in a modified Tony the Tiger: “It’s greeeeat.”

We’ll wait and see if Skype head Tony the Bates will deliver.

It’s soon onto Xbox and Kinect, which is decidedly great for Microsoft.

Ballmer notes there will be a lot more video and television offerings on Microsoft.

There is a demo that has some glitches, which is impressive anyway. Obviously, Microsoft is hoping Xbox becomes the home entertainment hub and discovery service (via Bing).

3:20 pm: Live TV is also a big deal, apparently, which is coming to the Xbox.

Finally, Ballmer sums it up, noting things are changing fast.

He says he gets it that investors worry if the company gets it.

“I am very optimistic about our future,” Ballmer concludes, punching NO words.

3:24 pm: It is now on to Q&A, which will also include Windows head Steven Sinofsky.

Goody, goody.

3:25 pm: First question is on whether Microsoft is bringing Office to the new-look Windows. That’s a big one.

Ballmer doesn’t firmly commit, but notes that Microsoft wants to support its platforms with applications.

“We are rethinking and working hard on what it would mean to do Office Metro-style,” Ballmer says.

3:27 pm: Second question on which apps will work on ARM-based Windows, another key question.

Sinofsky reiterates that Windows 7 machines will be able to run all apps in Windows 8 (but of course all Windows 7 machines are Intel or AMD-based, not ARM). Apps written for x86 won’t run on ARM, but all new-style apps will work on both.

Sinofsky notes that if all older apps were allowed to be ported to Windows-on-ARM, the ARM-based systems would lose some of their advantages when it comes to things like battery life.

3:30 pm: Next question is on the opportunity for Windows Phone in the enterprise, noting that most of the recent work on Windows Phone has been on the consumer side.

“The most important thing is to capture the imaginations of people,” he says, noting that they have both work and personal lives.

He notes Mango release has some improvements for businesses.

3:32 pm: Asked if the tablet market will enter the enterprise like the phone, Ballmer notes that consumers will buy lots of different devices and there is always the question of which machines the enterprises will allow in. Some tablets will come in that way, he said.

“We embrace that concept,” Ballmer says.

Sinofsky notes that the proposition of having a tablet that can turn into a serious work computer just by adding a keyboard will have significant appeal.

As for touch, he reiterates his contention that once people use a touch-based Windows 8 machine, they will soon start touching every PC they use.

3:38 pm: Analyst asking in a roundabout way whether Microsoft expects to do better than the 10 percent annual revenue rate it has had over the last five years.

CFO Peter Klein is not biting: “Our view is the opportunity is tremendous. It’s as great as it ever has been.” But market also competitive and fast-changing.

3:46 pm: Finally, a question about Yahoo and the firing of CEO Carol Bartz and all the other uncertainty there.

While Ballmer did the online search and ad partnership deal with her, this hot potato gets handed over to Qi Lu. Thanks, Steve!

The contract survives change of control, he says. “That does not really impact day to day,” says Qi about the Bartz ouster.

Then Ballmer decides to weigh in: “Hundreds of millions of people every day using those services. … No matter where they take their business …”

In other words: He has no idea!

3:49 pm: Next! What about bottom-line growth dropping over the next few quarters?

Klein said Microsoft is focused on the long term and it was not making a guidance statement.

Ballmer: “We’ll give you no guidance. None.”

Anyway, all the markets are growing! Did we not stress that?

3:52 pm: Well, what about a new pricing strategy?

No dice!

The Microsoft execs look a little weary and in need of some cocktail fare. Wait, that’s me.

More on upgrade from Windows 7 and how all these many devices from many companies will work fine together.

Ballmer notes that Bing and Skype will continue to support Google Android and Apple iOS.

It is a small world after all!

3:58 pm: Last question!

One on Office 365 and how it is doing.

COO Turner is back as the coach of Team Microsoft: Great, just great.


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