Microsoft Annual Stockholders Meeting November 9, 2005 Become a Complete Fool
CAVEAT: This write-up is what I got out of my scribbled notes. There are probably errors. If you spot them, point them out. If there is some confusion I'll try to resolve it. Luckily the event was web cast so the truth is out there. Keep in mind that some of the claims are merely what I heard them say. It doesn't mean I agree.
This year was like each of the past few. The meeting is held in a big convention hall room that is basically hundreds of chairs facing a platform with four seats, a podium and a couple of big screens. About the only addition this year was an extra podium for the XBOX-360 demo. In the back of the massive room were about a dozen demos: XBOX, MS TV, MSN, Vista, Mobile, Media Center, Small Business Accounting, Safety Tech, Product Support, Investor Relations and a store with MSFT gear. The most enthusiastic crowds were around the two XBOX demos. No surprise.
The crowd was almost exclusively folks dressed casually, which I take as the independent investor crowd. There were a few suits walking around which I assume are the financial types.
Really the whole thing is quite low key considering how much money is represented in that one room. Despite what folks say about rich people, it could've just as likely been any bunch of folks gathered to hear someone speak.
This actually spanned the whole long meeting but I'll summarize it here. Everything passed. The only surprise was that there weren't any shareholder proposals, nuisance or otherwise.
BUSINESS PRESENTATION - which is what folks are really there for.
Chris Liddell, CFO, talked about 2005, 2006, and some other items.
They outperformed in 2005 with revenues rising 8%. He broke it out by product but I only caught the facts that Servers & Tools were up 16% and Mobile was up 36%. They were pleased with their mergers/acquisitions and their innovations as exemplified in the servers and Halo2. The $44B used in dividends and buybacks probably set a record for any business.
In 2006 they hope to see revenues rise 10% to 12% with operating income of $18.3B to $18.8B and division revenue growth of 5% to 13% except MSN ( which I think was going to be positive but smaller) and HED (which stands for Home Entertainment Division which was probably going to do like 50%, partly from XBOX-360).
I got the impression that they are trying to get folks to make bigger, bolder actions within the company. The company will continue to use cash for Mergers/Acquisitions and intend to buyback $30B in stock by December 2006, which is twice as quick as before.
Steve Ballmer took the next section and come to think of it I can't remember what this section was supposed to be about. Here's what I got.
2006 is crucial. He is optimistic and mentioned being on the brink of a new wave of optimism and growth. They will be keeping up with a changing marketplace and will drive new software innovations into it. There will be many new products. SQL server is now bigger than Oracle and IBM combined and is now the server of choice.
XBOX-360 will have 200 games and be the clear technical leader. There are 2 million online subscribers.
He mentioned a major strategy shift, which I think will be focused on Windows Live and Office Live which are the Internet based versions of the desktop software. This represents a major potential revenue stream. They look towards being as successful on the web as they are on the PC. There will only be a few players in the online ad industry and they intend to be one.
They will accelerate the stock buyback but the stock is not a measure of the company's success.
They aim for greater growth in the PC, XBOX, web, and mobile realms and the company has the cash to afford to invest in those initiatives. He mentioned the three markets of business, entertainment and the home.
Selling legal software into countries that have lots of pirated software is something they are working on.
He sees plenty of growth in the foundation businesses, which was his chance to talk about Vista. He mentioned its security and usefulness as a digital entertainment center.
MSN Search will enable demographic targeting. I think he said more but I didn't catch it.
Dynamic CRM (Customer Relationship Management) will be targeted at small and medium sized businesses. I guess this is new.
There will be a continuous flow of new releases and great opportunities.
HISTORY OF INNOVATION
Bill Gates described the over-arcing trends.
Microsoft has been around for 30 years. When they started mainframes were the thing and there wasn't a software industry. In 1975 the first kit PCs came along. By 1985 the IBM PC was established and MS DOS and its Graphical User Interface were the platform. By 1995 Windows and Office were the products to build around and the challenge and opportunity of the Internet were becoming apparent. Microsoft introduced .Net in 2000 and in 2005 it has become the success to build on.
Hardware trends are giving Microsoft everything it needs: servers with 64 bit architectures, Tablet PCs driving into the mainstream, software intensive phones, and wireless. There is a lot of opportunity there.
Software is enabling the digital workstyle (more efficient and productive meetings, sales, projects) and the digital lifestyle (music, photos, memories, TV, games).
They will take the services approach ala Live software with constant updates and (something about filtering).
Craig (sorry I didn't get his last name) demo'd Vista and XBOX from the podium.
VISTA was touted for its security, which can't be demonstrated, so what he showed us was the way Vista handles multiple open windows on the desktop. It relies on what I'll call pop-ups along the task bar. As the cursor goes over the icon, a miniature view of the window blossoms. So instead of a Word document just being a big W a small picture of the file appears. You can also cycle through the pages almost like a slideshow. The coolest visualization was of all of the windows in a sort of 3-D cascade that you could cycle through.
XBOX-360 was demo'd via one of the driving games. He walked out into the audience to play it, partly to subtly point out the wireless capability and also to play the game on the really big screens. Of course it will be online as well and be the focus of the digital lifestyle that Bill mentioned. Finally they've incorporated an Off switch into the remote.
LONG TERM VIEW
Bill returned to talk about Office 12 (better interface and connectivity) and the long term view.
Microsoft's long term is governed by its R&D that it is uniquely able to fund. They've just opened a research center in India. In general they are working on auto secure, ink, speech recognition and machine learning. Those are the items that have been worked on for a long time and are now becoming useful. There are undoubtedly other things that are newer but further from use.
Innovations should reduce IT overhead which helps to sell the product.
Software will allow us to work and live in new ways.
QUESTIONS & ANSWERS (paraphrased because I'm not doing this verbatim)
? Microsoft is a positive force in encouraging the proper policing and payment involved in intellectual property use around the world.
? The concern was about the generational gap. Microsoft is working on ease of use by : reducing the number of remotes at home, not burying commands, and with video training on the web site.
? Access will remain part of Office Suite Pro, not in the other versions.
? Microsoft only enables biotech through its data mining applications and possibly special extensions.
? Someone representing a labor union went on so long about the election of directors that I missed his point. Microsoft thinks they are doing things right.
? The web based software will incorporate security features. (There must've been more to that one.)
One of the most successful companies of all time manages to continue to grow and wants to keep that up via their enormous resources, a well established base, and innovation. In addition they are buying back stock and paying dividends (or at least have recently).
This was the first year where they didn't have to talk about lawyers and spent more time talking about future products.
Of the dozen or so demos in the back of the room the only two that got my attention were the Safety one (because I didn't know what it was) and the XBOX-360 (which definitely had cool graphics). I checked with someone beside me and he agreed that none of the products drew him in. Much of what is there is more complex, more bells and whistles, rather than simpler and more reliable. The reliability increases are gained via constant updates and security hurdles. Those don't make life easier. They add tasks. Maybe if I had broadband I wouldn't mind, but frequent multi-meg downloads don't appeal to me.
During the XBOX-360 demo, the games and such loaded faster than my XBOX, but there was still a delay.
An ergonomic note: The men performing the demo for the crowd has the same red flattened spot on the heel of his hand that I do. Are we just accepting this now?
They are working it as hard as ever and sincerely want to keep going. They aren't trying to rest on their past successes. They are showing growth in lots of areas, though very few of those actually feed the profits.
I can't say that I am convinced that it is going to work. Of course no company is granted, or can grant, guarantees. I suspect that they will continue to be successful. Their pile of cash is getting used and something will appear from its burn rate, but it has to sustain an enormous company.
Put another way, when I walk out of some companies' meetings I want to buy more. Microsoft leaves me with the feeling that I might as well hold onto it and maybe sell when it is convenient and if something neat happens, well then that's good. Hardly a ringing endorsement.
LTBH with original shares purchased in 1994 and recently sold. Each year I seem to have less. At this point I no longer use MSN, Passport, and within the last year have switched to an Apple where I use MS Word and MS Excel, Quicken, Adobe and a bunch of Apple software. I used to program back in the dark ages of Fortran and try to imagine how many boxes of IBM cards it would take to load up and modern operating system. Amazing how far it has all come.
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Microsoft Annual Stockholders Meeting November 9, 2005
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