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Originally published September 14, 2011 at 9:17 PM | Page modified September 14, 2011 at 9:43 PM

Microsoft's Ballmer maps out road ahead

Microsoft executives laid out the strategy for the company's direction and growth at its annual meeting for financial analysts.

Seattle Times technology reporter

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ANAHEIM, Calif. — Using a word heard frequently this week in the unveiling of Windows 8, Chief Executive Steve Ballmer laid out the strategy for a "re-imagined" Microsoft, as he outlined the company's direction and growth Wednesday.

"If Windows 8 is Windows re-imagined," he said, "we're also in the process of re-imagining Microsoft."

Ballmer outlined the strategy first in a surprise morning appearance during Build, the company's conference for independent software developers, at which the developer preview version of Windows 8 was unveiled. Windows 8 is the first version of Windows designed from the beginning to work with both PCs and tablets.

Ballmer and other top Microsoft executives then gave more details about where they see opportunities for the company during its annual financial-analysts meeting (FAM) Wednesday afternoon, held in conjunction with Build.

Taking stock of where the company is now, Ballmer listed the seven businesses Microsoft has invested in: phones; PCs, TVs and software for those; back-end infrastructure platform; productivity and communications software; information and search; and business software for enterprise resource planning (ERP) and customer-relationship management (CRM).

He and the other executives emphasized that the Windows operating system will continue to stand at the core of the company.

While not new, the information on where the company is headed with its various products was encouraging, several analysts said.

Because so much emphasis had already been placed on Windows 8 during Build, the executives spent less time talking about it during FAM.

Rather, much of the emphasis was on cloud software and services — computing in which users work with files and access applications that are stored on remote servers.

"We're all into the cloud," said Chief Operating Officer Kevin Turner.

While Microsoft's vision decades ago was of a PC on every desk, "the new aspiration in the company now [is] we want to be the company that can connect every person and every business to a continuous cloud server," Turner said.

Microsoft, with its Azure cloud platform and products such as Office 365 that use the cloud, potentially has the ability to bring together different information systems and make them work together in the cloud, said Satya Nadella, president of the Server and Tools business.

"Our mission is to cloud-optimize every business," he said.

Executives also spent time talking about their vision for their search engine Bing.

While search these days is typically thought of as finding matches for key words, they said they want search not just to be for finding information but also for completing tasks — such as buying an airline ticket.

They also talked about how Bing would be used across several Microsoft products, including Xbox. Voice search using Bing is coming to Xbox this holiday season, Ballmer said.

Company bigwigs noted the success of Xbox and how they hope to build on the Xbox-in-the-living room concept, where the console is not just for playing video games but also for watching TV or listening to music.

Toward that end, Microsoft plans to "dramatically increase" the amount of content in its entertainment catalog, Ballmer said, through its partnership with video suppliers and also with more live TV.

The company also has high hopes for its latest smartphone operating system, Windows Phone 7.5, code-named Mango, which phone makers are bringing to market now.

Windows Phone 7 has a minuscule portion of the smartphone market. "We haven't sold as many as I would have hoped," Ballmer acknowledged.

But he added, "I'm very optimistic on where I think we could be."

Several analysts said they were encouraged by the steps Microsoft is taking.

"It seems like what they're showing off today is pretty much how well they can integrate their businesses together and create a pretty unified and unique experience," said Sid Parakh, senior vice president of equity research at Seattle investment firm McAdams Wright Ragen. "A lot of their competitors don't have the variety of capabilities. Tying together the devices through the cloud seems to be a robust long-term strategy.

"If they can execute and deliver, that's going to be fairly significant," Parakh added.

Mark Moerdler, senior research analyst of global software for New York research organization Sanford C. Bernstein & Co., said Microsoft "is doing a lot of good stuff."

His company has a "buy" recommendation on Microsoft because "we believe they have opportunity for growth from their drive to the cloud and from the fact that Windows is not falling off a cliff," Moerdler said.

Brent Thill, managing director of software for San Francisco-based UBS Investment Research, said Microsoft is behind on tablets and "a lot farther behind on phones" and sees Windows 8 as a step in the right direction.

"When [Windows 8] ships, it could put them into position to be No. 2" in tablets behind Apple's iPad, he said. "The market has been looking for a No. 2."

And the company is at least addressing the issue of not being competitive in smartphones with the release of Windows Phone 7.5.

As a stock, Microsoft is "one of the cheapest names in software with a lot of hidden gems," said Thill, explaining why UBS has a "buy" rating for Microsoft shares, with a $33 price target. And "they've put up decent growth and revenue margins," he said.

Investment bank Goldman Sachs issued a report Wednesday morning keeping its neutral rating on Microsoft shares, with a $29 price target.

Microsoft ended its fiscal year 2011, on June 30, with $70 billion in sales, $23.2 billion in profit, and earnings per share of $2.69, up from a year ago.

Microsoft stock closed at $26.50 Wednesday, up 46 cents, or 1.8 percent.

Janet I. Tu: 206-464-2272 or jtu@seattletimes.com

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