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Microsoft has plenty of growth left, Ballmer says

The software giant's chief executive tells analysts that its upcoming version of Windows, as well as bets with mobile phones, gaming, and productivity, offer huge revenue potential.

Jay Greene Former Staff Writer
Jay Greene, a CNET senior writer, works from Seattle and focuses on investigations and analysis. He's a former Seattle bureau chief for BusinessWeek and author of the book "Design Is How It Works: How the Smartest Companies Turn Products into Icons" (Penguin/Portfolio).
Jay Greene
4 min read

ANAHEIM, Calif.--While rivals may have jumped ahead in key growth markets, Microsoft Chief Executive Steve Ballmer and his colleagues in the executive suites made the case to investors and analysts today that Microsoft still has plenty of high-octane growth left.

Microsoft's Steve Ballmer talking at the company's 2011 financial analyst meeting today Microsoft; screenshot by Jay Greene/CNET

His comments came at Microsoft's annual financial analyst meeting, pushed back a few months to coincide with the Build conference here so analysts could hear about Windows 8, the next version of its flagship product. The meetings have historically occurred in July in Redmond or Seattle.

The company's investments in creating the new Windows platform, which takes advantage of touch-based computing and pushes Microsoft into the flourishing tablet market, offer significant growth opportunities, Ballmer said. He also highlighted bets the company is making in gaming with Xbox, Internet search with Bing, and productivity applications with Office, among other markets.

"There's plenty of shareholder value growth from successfully investing in these categories," Ballmer told analysts.

Growth remains an issue for investors. Microsoft continues to post solid results. But the stock market hasn't given the company much credit, with the stock trading flat for much of the last decade. That's because the company has been trounced by rivals in key emerging markets such as mobile phones, tablets, and search.

At the center of Microsoft's pitch is Windows. Ballmer started the day talking with developers, reiterating that Windows is at the core of everything Microsoft does. Microsoft is not going to offer different operating systems for PCs and tablets, in the way that Apple currently does. Ballmer continued on that theme with analysts.

"Windows is at the center of our go-forward strategy," Ballmer said. "And we certainly think that's the right thing to do for our customers and for our shareholders."

The view has some appeal to analysts. Microsoft needs to provide a seamless experience across different categories of devices, said Sid Parakh, an analyst with McAdams Wright Ragen in Seattle. The vision is sound, he said, if the company can offer an operating system that allows touch devices to provide great experiences.

"It depends on what they can deliver," Parakh said.

In the meeting, Ballmer also spent a bit of time talking about the company's Windows Phone business. The company relaunched its mobile-phone efforts last year with a new mobile operating system, Windows Phone 7. And it plans to update that release in the coming weeks with Windows Phone 7.5, code-named Mango.

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Ballmer acknowledged that the company has underperformed in the marketplace.

"We haven't sold quite as many probably as I would have hoped we would have sold in the first year," he said.

But he believes that Mango, coupled with new phones soon to arrive from partner Nokia, among others, should provide a boost.

"I won't say I love where we are, but I'm very optimistic about where I think we can be," Ballmer said. "The level of enthusiasm from the customer base is high enough, we just have to kick this thing to the next level."

Xbox, too, has significant growth potential, Ballmer said. The Kinect motion-sensing controller has opened up the console to new types of gaming and entertainment, bringing the Xbox new customers.

"With Kinect, we started the job of pivoting repositioning Xbox for a much broader demographic. More women. More young children," Ballmer said.

Ballmer dodged a few questions from analysts. Longtime Microsoft analyst Rick Sherlund, who recently started following the company for Nomura Securities, pressed Ballmer about whether Microsoft would offer a version of Office with the new Metro-style interface that's a key piece of Windows 8. Microsoft has historically updated Office to take advantage of the latest features in Windows. But Ballmer provided little insight into the company's plans for Office with regard to Windows 8.

"When we have something to talk about we will," Ballmer said. "We are rethinking and working hard on what it would mean to do Office Metro-style."

Ballmer shed little light on how the recent firing of Yahoo Chief Executive Carol Bartz will affect Microsoft's partnership with the Web company. He said the company has talked with Bartz's successor, Tim Morse. But he said little else about the conversations.

"The partnership will remain strong. It's important to them and important to us," Ballmer said.

Despite the changes in partner leadership and challenges the company faces in growing markets, Ballmer, not surprisingly, remained bullish on Microsoft.

"Every one of these businesses is rotating and flipping and being reinvented every several years and that keeps this business fun, interesting, and dynamic," Ballmer said. "We've got a lot of things we're going to need to continue to work on. That's for sure. And yet I'm very optimistic about our future, the things that we get a chance to go do."