ANNOUNCER: Ladies and gentlemen, please welcome Microsoft General Manager, Investor Relations, Bill Koefoed.
BILL KOEFOED: Good morning, and welcome to the Annual Meeting of Shareholders. I’m Bill Koefoed, General Manager of Investor Relations. Welcome also to those attending the meeting online. We are streaming live today at the Investor Relations website.
As you know, we’ve tried to make this meeting as inclusive as possible, and are excited to offer shareholders the opportunity to vote via the virtual shareholder meeting for the first time. Thank you for being with us today. We greatly appreciate your interest in the company.
Let me now introduce Mike Williams and Jeff Schaberg from Deloitte and Touche, LLP, our independent public auditor. And I would also like to introduce our independent directors. They are Dina Dublon, Chair of the Compensation Committee, member of the Audit Committee, Dr. Maria Klawe, member of the Compensation and Regulatory and Public Policy Committees; Stephen Luczo, member of the Audit Committee; Charles Noski, Chair of the Audit Committee, and member of the Governance and Nominating Committee; and Dr. Helmut Panke, Chair of the Regulatory and Public Policy Committee, member of the Audit Committee; and John Thompson, member of the Compensation and Regulatory and Public Policy Committees.
Before we proceed, let me review a few housekeeping items. Please take time to visit our Microsoft product showcase here in the room. This is the first time we’ve done this in time for the holidays around the country. We have several of our products available, including the popular Surface device, and plenty of knowledgeable store associates ready to help you with any product related questions that you might have, and I think you’ll agree with me that there was lots of enthusiasm and lots of good support from the folks over there in the room. Thank you very much.
As in prior years, members of the investor relations team are around and will be available to answer your questions at the check-in desk located outside, or in the area around the product showcase. Please be sure also to visit our investor relations website. Our goal is to maintain the investor relations website as the authoritative portal through which visitors can easily find financial and business performance information about the company.
There you can also sign up for e-mail delivery of proxy materials, as well as alerts and RSS feeds to have information, including quarterly earnings announcements pushed in real-time. For those of you who haven’t been there, the website is www.Microsoft.com/investor.
If you parked here in the Meydenbauer Center parking lot, your parking will be provided free of charge. You will not need to get your ticket validated. And, finally, when the business portion of the meeting is over, we will have some time for Q&A, which has been expanded based on your feedback.
There never has been a more exciting time in the company’s history. The products and services we have delivered to the market in the past few months mark the launch of a new era at Microsoft. In a 12-month period, we virtually refreshed all of our major products, including our server and database products, Bing, Windows 8, Windows Phone 8, and Office. And the software that we’ve delivered is complemented by services.
Before we get started with the business portion of today’s meeting, we thought we would show off some of our new releases, and how it fits in our broader device and services strategy that Steve wrote about in his Shareholder Letter.
So to get started, please help me welcome Ryan Asdourian, Senior Product Marketing Manager, to the stage.
Ryan.
(Applause.)
RYAN ASDOURIAN: Let’s get started to show off some really cool stuff. I want to actually start off with some PCs. You see some beautiful PCs up here. When I think about PCs, I think about four different major form factors, all-in-ones, notebooks, convertibles, and tablets. And right here, to start, I’ve got an HP all-in-one right here, beautiful touch screen. You can fold these down, and here’s lots of different designs that fold all the way down, have batteries in them, beautiful PCs.
Here I’ve got an Acer laptop. If you look at this and it looks like a standard laptop. It looks absolutely thin and light. It also has a touch screen, absolutely beautiful design. It folds all the way down. Really powerful, really thin and light.
This is the Lenovo Yoga, also starts out by looking like a regular traditional laptop, but we’ve added touch, and while I can fold the Acer all the way down, I can actually go a bit further with this one, fold it all the way back, and now I’ve got a tablet design right here. Really cool form factors.
When we think about all the different ways that convertibles work, detaching, flipping, converting. This one right here is the Dell XPS 12, and it has a really unique and cool hinge design. I actually have a touch screen, just like all these other ones, but this one flips out just like this, I can flip it down. A beautiful tablet form factor right there.
And then this is a Samsung design that actually detaches. So I’ve got my keyboard, I can use it as a notebook here, but just go ahead and press this down over here, and I get a beautiful thin and light design from Samsung.
Now, these are all running Windows 8. I also have some beautiful Windows RT devices. This is from ASUS. If I go ahead and pop this off from the keyboard here, I want you to just look at how thin and light this is. It only weighs 1.14 pounds. Super powerful, uses touch, running Windows RT. An absolutely beautiful design.
And this right here is the Surface, great for work and play. I can go ahead and pop off my keyboard, get this beautiful tablet, just like you saw in the video, just snap this together. Of course, we’ve got lots of Surfaces and some other PCs over at the Microsoft Store pop-up, so you can actually purchase one. And a couple of these other PCs right over there.
So this is Windows. Let me actually take you into the software a bit. Here, what you see is the PC that I’m working on right now. I can go ahead and show you my lock screen, and I’ve got it configured. I get notifications on this already. I’m using a touch-screen. You’ll be able to follow along with what I’m doing.
As I slide up and I go to log in, you don’t have to log in the way you have in the past. Typing a password, remembering some sort of long password, instead you use picture password. I just use a couple of gestures. In this case I’m going to touch my face, and my wife’s face, and then draw a line right here, and I’m logged in just like that, easily, safely, securely. And this right here, this is my start screen.
So you see a lot of apps that are live with information, all sorts tiles that have people, sites, things that I care about a lot. But, over in the bottom left I see the desktop. Let me dive into this. This is the familiar desktop that you’ve used in the past. It runs Office applications. You see I’ve pinned some of them to the bottom and so it runs any sort of Windows 7 application that you had before. Familiar, easy, and I can easily come back to a start screen to move around through Windows. Because it’s a touch screen I’m going to swipe in from the right, and I hit start, and this brings up the beautiful start screen.
So here I can really set up and personalize it to match all of my stuff. All you do is you log in with your e-mail address, tied to your Microsoft account. So in my case I log into this machine, and I happen to log into all those machines over there and it automatically pulls down all sorts of information about me, things that I care about, things that are personal to me, and after it does that it brings my photos down all that stuff, I can also customize this just by moving icons around, exactly how I like, so that all the things I care about are right here on the PC.
Some of the stuff on the left side you see I’ve got weather, mail, people, maps, news things that I care about, we bring a lot of those applications right to you. Bing has been bringing a lot of rich data to customer’s fingertips, such as news, maps, all sorts of different applications that bring in this information like the Bing finance app, as well. Let me show you what one of these looks like.
This is the Bing news app, full screen and immersive. I get this beautiful display with all sorts of information right at my fingertips, and I can actually choose where I want that news to come from. Some of my favorite sources, New York Times, Wall Street Journal, all of that is right there. And the news kind of updates for me right as the world changes. So I get all of that right here within my app brought to me.
Now, sites also can take advantage of some of the things that we’ve done in Windows 8. One of the sites that I spend a lot of time on is MSN. And it was redesigned for Windows 8 to take advantage of Internet Explorer 10 and touch. So here I can go ahead and see the beautiful newly designed MSN home page. I just scroll up and down and even inside here in the page I can scroll right and left. It’s totally optimized for use on my tablet.
So the Windows Store has also had its grand opening with the launch of Windows 8. For the first time Windows users can get direct access to download apps. And since launch we have doubled the number of apps in our store. Let me show you an example of one. This is the ESPN app. It helps me keep up with all of the different things I all the different sports that I want to follow. I get all sorts of information here, scores, videos, pictures, and more. And I can choose, say, I want to follow something in the NFL. I can go ahead and dive into the NFL, see all sorts of information, information on standings, teams, and I bring that all to me, personal, customizable, to the things that I want to follow.
The new Office has also taken a major leap. We’ve released Office 2013 recently and it was redesigned with Windows 8 in mind. I want to show you OneNote. OneNote is also optimized for touch, and this is a great way to kind of start using it’s almost like a virtual piece of paper when I’m using my tablet. I’ve gone almost completely paperless by using this pretty much all the time and right here I’ve got a stylus. This lets me just use it like a piece of paper.
So in this case I’ve got some slides that I was working on. I can go ahead and say this rocks, and then I’ve got some action items up here so I’m going to go ahead and mark these complete. And my OneNote and all of my Office applications are tied to my SkyDrive. And SkyDrive is my storage where I store a lot of my documents, my music, my photos, and all sorts of information about me that syncs across all of my PCs, including this notebook in OneNote.
So these notes are essentially sent everywhere. Let me show you one other I want to take you through one other app before I continue to dive in and that’s photos, because photos is something I spend a lot of time looking through and taking people through on my PC. And Windows 8 really brings this to life. So if I go ahead and I dive into some of my SkyDrive with my pictures, I’m going to actually show you I just got married, so I’ll show you some of my wedding favorite pictures. And you’ll see it immediately takes over this full-screen, immersive environment. So these are some pictures of my wedding party. And I’ll actually show you the other woman in my life who is in the front row, my mom, and I’m going to go ahead and since she’s here, go ahead and set this as my lock screen. So every time I log into my PC I’m going to get to see this picture of us at our wedding, or at my wedding.
So I showed a lot of apps. I showed Office. Now I want to kind of take you through how I work together on some of this stuff, when I’m in OneNote I’m going to go ahead and open up a PowerPoint file. This PowerPoint is kind of how I work and so I spend a lot of time diving through this, but I, of course, like to be entertained while I work and have a little music in the background.
So I’m going to come over to Xbox music. Xbox music gives you 30 million songs for free. You get to choose what you’re listening to. The songs are free and you get this beautiful interface right here. I’m going to go ahead and search for a song by U2. So I’ll go ahead and start playing some U2 here. Let me get this going, get kind of in the mood for working. And I can actually bring this PowerPoint that I was working on right over here so that I’ve got my PowerPoint that I’m navigating through and editing while I’ve got my music on the right side pinned over here. And I can go ahead I can change songs. So I get kind of the best of both worlds, work and play, using Windows 8 and using Office here. Now, when I’m all done I just go ahead, I can go back into the music. I kind of swipe away my PowerPoint. Done with work.
Speaking of entertainment, though, in addition to Xbox music, the other things that I want to get and show you really quick, I’ll go ahead and close this down, is I’ve got Xbox games, I’ve also got Xbox video. And Xbox video gives me access to all sorts of movies, TV shows, and here I’ve got Snow White and the Huntsman, the new Snow White movie. I can go ahead and start playing this on my tablet.
Now, as I start to play this on my tablet you can imagine the scenario where I’m watching this. I’m walking around. And I get home and now I’m in my living room. I’ve got my Xbox. I’ve got my big screen TV. And I’d actually like to watch the movie over there. While I’m watching this I can swipe up on my tablet and you see Play On Xbox 360. So I’m going to go ahead and hit that. Now, my Xbox is right over here. This TV is tied to it. And the Xbox is down over there. What it’s doing now is it knows what I was watching. It knows where in that movie I was watching it, and it has all sorts of rich information. You see it’s already picked up exactly where I was watching.
Now, if you look up the screen over here it actually is still showing what’s on my tablet. So picture I’m sitting on my couch, I’m watching the movie on my big screen TV, and I’m getting all sorts of rich information about the movie. Here’s information on the different people that are actually in that scene. And it changes as the scene changes. I can also flip through the different scenes here and take a look at the different actors. I get the cast for the movie. I see what movies they were actually in. I get all this rich information sitting on my couch, enjoying entertainment.
So this is a bit of how this is. Let me go ahead and stop this. I’ll pause this for a second. And here we go. I don’t want you guys to get distracted watching the movie, while I’m finishing my demo here. So I’ll come back to my start screen and this kind of shows how my Windows 8 PC is tied to my Xbox. But, when I think about bringing devices, or bringing experiences together across all my devices, there’s one device that I really care about and that is my phone. And here I’ve got my Windows Phone 8. Now we just released this. I want to show you a couple of the ones that we just released. This is the HTC 8X, beautiful phone, with Beats Audio, super-thin, super-light, slightly bigger screen over here. This is the Samsung Ativ, beautiful, again, Windows Phone 8.
Now, the one that I’m actually using right now is over here. This is the Nokia 920, and you’re able to kind of follow along with what I’m doing on the screen. So what you see now is actually my lock screen again. It’s the Bing background. It changes every day. So I get a beautiful picture every day when I’m using it. And here after I open it up is my Live Tiles how I’ve arranged them. You get that same familiar interface that you see on Windows on the phone, as well.
Now, because it’s also tied to SkyDrive I can go ahead and dive into one of my the same PowerPoint that I was working on there. And what happens now is it actually will sync all the stuff that I was working on, you see it’s got the note that I just took, while we were talking, it’s got the checkmarks there on the action items that I needed to take. I can go ahead and edit this on here, as well. So I get that same functionality across my phone, and my Windows 8 PC.
And just like I was able to connect my PC to my Xbox, I can also connect my phone to my Xbox. I have Xbox Smart Glass on here. I’m going to go ahead and press that. And what’s happening now is you see that it’s going to light up on Xbox and tell me that my phone is connected. So I just signed in, there you see the notification, and one of the things that we’ve done over the past few months is bring Internet Explorer to the Xbox and essentially to your TV. So if you think about how you might have some people over and you want to show a web site on the big screen, normally you’d have to connect your PC to the TV so you could show that. Now we’ve made that a lot easier. So you have people over you want to show them pictures or videos, you can do that nice and easily.
Here I’ve got Internet Explorer on my phone, I’m going to go ahead and click that. And what happens now is I can actually use my phone as kind of like a mouse. So I’m dragging you’ll see the pointer right there, over on the Xbox. I can drag over. I’ve got some wedding web sites saved, because I’ve been having people over to show them photos from our wedding. So this is actually my photographer’s wedding website. And I can go ahead and scroll around and navigate the web site on my big screen TV, using my phone as a browser. So a really, really cool way of navigating. I can pinch and zoom, just like I would on a regular PC and kind of navigate through.
So let me go ahead and kind of come out of this. There we go. Now, when you’re really thinking about the smallest to biggest screen, I happen to bring one of the biggest screens there is with me. This is Perceptive Pixel. We acquired Perceptive Pixel last year and it’s really going to revolutionize the way meetings and learning occurs. It’s running a full Windows 8 PC. It is a full Windows 8 PC. And you can see that my lock screen has synced when I made that change, it’s already synced over here on this PC.
So fully touch, I just go ahead, I can log in. Again, I see the same picture password, so I’m going to go ahead and log in right there, nice and easily, and I get full Windows 8 at 82 inches. Navigate across with touch; I get some of the same things that I was talking about before, all the different apps, SkyDrive, photos. One of the things that I like to show is maps, because it’s pretty cool when you’ve got a screen this big. I can move it around and navigate in wherever I want. But, I can also show you when I’m trying to be productive here. If I go into OneNote you’ll see just like that it quickly synced all the notes that I took right on here. If you think about this in meetings it really becomes the ultimate white board.
So we’ll go ahead and lock this, so you get to see a picture of my mom again. When you think about what you’re doing with all these PCs, it’s really remarkable how Windows brings it all together. It’s all tied together from the four-inch to the 82-inch. So I hope that was entertaining, I’m really excited about all the stuff we’re bringing out as Microsoft, and with that back to you, Bill.
(Applause.)
BILL KOEFOED: Thank you, Ryan.
At Microsoft, we believe that technology can accelerate change to help solve some of society’s most pressing issues, and transform lives around the world. Microsoft supports programs and organizations that address the needs of communities worldwide through monetary grants, software and curriculum donations, technology solutions, and employee volunteer hours.
Here to discuss Microsoft’s Citizenship Initiative is Brad Smith, Microsoft General Counsel and Executive Vice President of Legal and Corporate Affairs.
(Applause.)
BRAD SMITH: Good morning.
Thanks, Bill.
Thanks, to all of you for spending your morning with us here, and the last thing we wanted to do, as Bill mentioned, before we start the formal part of the board meeting, is share a little bit of information with you about some of the company’s broader corporate citizenship activities.
As Steve Ballmer led us to a new era of devices and services, we thought it was appropriate to embark on a new era for the company’s broader citizenship activities as well. I think one of the things that has long been at the heart and soul of Microsoft is not just a passion about technology, but a passion about what technology can do for people. It’s therefore not surprising that one of the things that really excites people who work at the company is not just the products we make, but the people we get to meet throughout the year. I wanted to start by providing you with a glimpse of one of the individuals I’ve had the opportunity to meet over the last year.
In this case, it’s not somebody from next door in Redmond or Bellevue, or Seattle, but it’s literally somebody who grew up half a world away, if we could roll the video.
(Video segment.)
You can see in Mary Mwende’s face the smile that we get to see when we are able to bring our products to people and enable them to do things that they previously hadn’t really dreamed was even possible.
I think this connection to the community really is part of the fabric of our company. In some ways, it was reflected in the first steps that were taken in 1983 when we first launched Microsoft’s Giving Campaign. In that year, 200 employees raised $17,000 for charities, mostly in this area, in the Pacific Northwest. Last year, 29 years later, we reached a new milestone as our employees raised in a single year through their donations and the company’s match, over $100 million for charities.
(Applause.)
This year, last month, we did something that only one other company in history had ever done before. We reached a milestone where over the course of our 30 years of giving, our employees and the company together raised over $1 billion that has gone to over 31,000 non-profit organizations here at home and around the world.
As we’ve looked to the future, and the new era of devices and services, one of the things that we have learned is that our connection with the community, and our corporate philanthropy hopefully does good things for the communities in which we live and work, and it’s also good for our business. It gives us some visibility into the challenges that people face, and the solutions that technology can bring to them. It is feedback that helps us shape what we’re doing with our products.
We decided for this next era to concentrate our efforts to a greater degree. What we’ve decided to do, what we announced over the last couple of months we would do is this, we’d focus on the challenges facing youth around the world, and specifically the skills gap, the opportunity divide, if you will, that people between the ages of 18 and 24 frequently need to address, especially amidst high unemployment, here in the United States but really around the world.
Globally, the unemployment rate for this segment of the population is 12.7 percent. That’s more than double the unemployment rate for everyone else. And it’s not a problem that is confined to any single country or continent. It’s a problem that we’re working to address through our new initiative called YouthSpark. It renews our commitment to provide technology and training for teachers. It expands our commitment to provide technology tools to students in schools. It focuses on inspiring young people with programs like our Imagine Cup contest, a program that every year involves more than 300,000 people in over 100 countries competing to create new software technology and go head-to-head in competition with each other. It involves programs like DreamSpark, which provides software to students and students to business to provide the soft skills that people need to get employment; and BizSpark, the technology tools that new companies need when they are first created.
Put all together, we hope to do something that we think will be important. We said our goal would be to reach and help 300 million people over the next three years in over 100 countries. And we’re focused not only on this at a global level. As you may know, we’re very focused on these kinds of issues here at home as well, including in our backyard here in Puget Sound in Washington State. We’ve made a special effort to focus on the math, and science, and engineering and technology skills, so called STEM skills, for students in the K through 12 system. We helped co-found Washington STEM to drive innovation in these fields in our public schools. And we supported and co-founded, and have helped to fund the Washington Opportunity Scholarship Program which provides scholarships for students who grow up in Washington State who want to go to college in Washington State in one of these fields.
As we look to the future, we’re optimistic that we’ll be able to do some good. We’re going to do some good, we believe, for our own business. We’re unabashed in saying that we strive to do things that will do good for others, and help us do well at the same time. It gives us the opportunity to connect with a generation of people around the world that will shape the next generation of technology, but we also strive to do something more than that. We really do strive, we hope, to have a positive impact here at home and in community after community, person after person, who we hope will be inspired and do new things with their own life.
Thank you very much.
(Applause.)
PETER KLEIN: Well, good morning and welcome everyone. I’d like to call the 2012 annual shareholder meeting to order. I’m Peter Klein, chief financial officer at the company. I’ll be serving as chair of this meeting. Brad Smith, general counsel and executive vice president of Legal and Corporate Affairs will be serving as secretary. Welcome to all of our shareholders.
American Stock Transfer and Trust Company has been appointed as inspectors of election for the meeting. The inspectors are located at the reception table in the lobby.
Most shareholders have already voted by proxy, and your proxy votes have been tallied. If you are a shareholder of record or a beneficial shareholder holding a legal proxy from your bank or broker and you want to vote your shares now or change your vote, then ballots are available from the inspectors at the reception table in the lobby.
Filling out a ballot and giving it to the inspectors will have the effect of revoking any earlier proxy you gave. Beneficial shareholders with voting instruction forms may also submit their instructions using the computers at the reception table. The polls are now open and will close in about 15 minutes following the presentation of matters subject to a vote.
Now, I’m going to ask Brad Smith to report on the notice of the meeting and the proxies received.
BRAD SMITH: Thanks, Peter. The notice of the meeting and a notice of Internet availability of proxy materials were mailed by Broadridge Corporation beginning on October 16th, 2012 to all shareholders of record as of September 14th, 2012. And as a result, the meeting is being held pursuant to proper notice.
Proxies representing more than 85 percent out of the approximately 8.4 billion shares of the company’s outstanding stock eligible to vote have been received. And accordingly, a quorum is present and the meeting is duly constituted and should proceed.
PETER KLEIN: Thanks, Brad. As chair of the meeting, I have adopted an agenda that will govern the order of business at this meeting and rules of conduct of the meeting. Copies of the agenda and the rules are available at the reception table outside the meeting room. The rules of conduct also govern the Q & A session that will follow adjournment of the meeting proper.
This year, there is, if properly presented, one shareholder proposal for consideration. As per the rules of conduct of the meeting, the proponent of the proposal or his representative will be granted three minutes to introduce his proposal at the designated time.
We’ve now come to the part of the meeting where shareholders consider the matters set forth in the proxy statement. Voting on all matters is by actual count of the votes cast in person or by proxy at the meeting. The first item of business to come before the meeting is the election of directors. The following nine people have been properly nominated by the board: Steven A. Ballmer, William H. Gates III, Dina Dublon, Dr. Maria Klawe, Stephen J. Luczo, David F. Marquardt, Charles H. Noski, Dr. Helmut Panke, John W. Thompson. The board recommends a vote for each of the directors on the ballot.
Second item of business before the meeting is an advisory vote on the following resolution regarding executive compensation, the “say on pay” resolution. The secretary will read the resolution.
BRAD SMITH: Resolved that the shareholders approve, in a nonbinding vote, the compensation of the company’s named executive officers as disclosed in part 4 of the company’s proxy statement.
PETER KLEIN: The board recommends approval of the proposal.
The third item of business to come before the meeting is the vote to approve the employee stock purchase plan, the ESPP. This proposal is discussed in the company’s proxy statement and is an amendment and restatement of the company’s 2003 employee stock purchase plan. The board recommends approval of the proposal.
The fourth item of business to come before the meeting is ratification of the company’s independent auditor, Deloitte & Touche, LLP, for fiscal year 2013. This proposal is discussed in the company’s proxy statement. The board recommends approval of the proposal.
The fifth item of business to come before the meeting is the shareholder proposal. The shareholder proposal and its supporting statement are set forth in the company’s proxy statement. The secretary will read the resolution.
BRAD SMITH: Resolved: Cumulative voting. Shareholders recommend that our board take the steps necessary to adopt cumulative voting. Cumulative voting means that each shareholder may cast as many votes as equal to the number of shares held, multiplied by the number of directors to be elected. A shareholder may cast all such cumulative votes for a single candidate, or focus on a few candidates. Under cumulative voting, shareholders can withhold votes from poor-performing directors, in case there are any, in order to cast multiple votes for other director candidates. This is an important protection for shareholders.
PETER KLEIN: The proposal has been submitted by Mr. Kenneth Steiner. The chair recognizes Mr. Steiner’s representative, Don Shuper, for a period of three minutes.
DONALD SHUPER: Good morning. My name is Donald Shuper. Although I am a long-time local shareholder, I am speaking this morning on behalf of the proponent of the shareholder proposal for cumulative voting, Mr. Kenneth Steiner.
I will repeat, basically, what the basic proposal was. Resolved: Cumulative voting. Shareholders are recommend that our board take the steps necessary to adopt cumulative voting. Cumulative voting means that each shareholder may cast as many votes as equal to the number of shares held, multiplied by the number of directors to be elected. A shareholder may cast all such cumulated votes for a single candidate, or focus on a few candidates.
Under cumulative voting, shareholders can withhold votes from poor-performing directors, in case there are any, in any order — or in order to cast multiple votes for other director candidates. This is an important protection for shareholders.
Cumulative voting also allows a significant group of shareholders to elect a director of its choice, safeguarding minority shareholder interest and bringing independent perspectives to board decisions. Cumulative voting won 54-percent support at Aetna, and greater than 51-percent support at Alaska Air two times. It also received greater than 53-percent support at General Motors in two annual elections.
The Council of Institutional Investors and CalPERS recommend adoption of this proposal topic. Please encourage our board to respond positively to this proposal for cumulative voting to protect shareholder value. Thank you.
PETER KLEIN: Thank you, Mr. Shuper, the board recommends a vote against this proposal for the reasons set forth in the company’s proxy statement.
The discussion of matters for shareholder consideration is closed. Please be advised that the polls are now closed. At this point, the voting tabulation has been completed and we will report the preliminary results of the matters voted upon today.
Proposal number one is the election of directors. As provided by the majority vote standard in our bylaws, a director or candidate must receive a majority of votes cast in order to be elected. Brad, please report the vote.
BRAD SMITH: The following nine persons have received a majority of votes cast, each with votes in excess of 96 percent of the votes cast: Steven A. Ballmer, Dina Dublon, William H. Gates III, Dr. Maria Klawe, Stephen J. Luczo, David F. Marquardt, Charles H. Noski, Dr. Helmut Panke, and John W. Thompson.
The nine nominees are elected directors to serve until the next annual shareholder meeting and until their successors are elected and qualified.
PETER KLEIN: Proposal number two is the advisory vote on executive compensation.
BRAD SMITH: The proposal has received affirmative votes representing more than 94 percent of the votes cast.
PETER KLEIN: Thanks, Brad. The proposal is approved.
Proposal number three is the approval of the company’s employee stock purchase plan. Brad, please report the vote.
BRAD SMITH: The proposal has received affirmative votes representing more than 99 percent of the votes cast.
PETER KLEIN: Thank you, Brad, the proposal is approved.
Proposal number four is the ratification of the company’s independent auditors for the current fiscal year. The proposal requires the affirmative vote of a majority of the shares voting on this matter. Brad, please report the vote.
BRAD SMITH: The proposal has received affirmative votes representing more than 98 percent of the votes cast.
PETER KLEIN: Thanks, Brad. The proposal is approved.
The next item is the shareholder proposal. The proposal requires the affirmative vote of a majority of the shares voting on this matter. Brad, please report the vote.
BRAD SMITH: The shareholder proposal received 26 percent of the votes cast.
PETER KLEIN: Thank you, Brad. Shareholder proposal number one is not approved.
We expect to post details of final voting results on these matters on our investor relations website by tomorrow, and we’ll also report the results in a Form 8K filed with the Securities and Exchange Commission within four business days.
We have completed the business of the meeting and our shareholder meeting is now adjourned.
Before I introduce our next speaker, let me remind you that we may make forward-looking statements during this meeting which are any predictions, projections, or other statements about future events. Actual results may different materially from these forward-looking statements because of a variety of risks and uncertainties about our business which we describe in our filings with the SEC, including our forms 10K and 10Q.
At this time, I’m pleased to introduced Steve Ballmer, Microsoft’s chief executive officer. (Applause.)
STEVE BALLMER: Well, thank you all for coming today and thanks for your investment in Microsoft.
It’s been a tremendously big year for us. We delivered strong results. We launched a set of fantastic new products, and I think position Microsoft for an incredible future.
Last financial year, revenue grew to a record $73.7 billion and through strong cost discipline, cash flow actually from operations increased 17 percent to $31.6 billion.
Additionally, we returned more than $10 billion to shareholders through a combination of stock buybacks and dividends.
But most importantly, over the past few months, we launched a remarkable wave of products that people love and I think businesses will need.
It’s been now a full month since Windows 8 became generally available. And to date, Microsoft has sold 40 million Windows 8 licenses. Windows 8 is also outpacing Windows 7 in terms of upgrade sales. And now with millions and millions of people using Windows 8 and based on customer feedback, we know for sure that people get it and like it. They’re using the features and downloading new applications. In fact, several apps have reached already over one million downloads.
Windows 8 is shaping up to be one of the highest-quality products we’ve ever created. And it’s not just consumers who love Windows 8. Companies worldwide are already adopting Windows 8, including Johnson & Johnson, British Telecom, the television division of 20th Century Fox, Bank of America, Seton Hall University, and many, many more.
Additionally, Windows Phone 8 has been on sale for a few weeks and is also off to a great start. The new Windows Phones from Nokia and HTC are getting rave reviews and have initially sold out in many, many places around the world. We’re working with our partners who are ramping supply, launching in new markets, and we’re already selling four times more phones than at the same time last year.
Xbox concluded another very successful so-called “Black Friday” holiday sales period. In the U.S., we sold more than 750,000 Xboxes alone and extended our lead as the number-one console in the market.
We also exceeded expectations for Halo IV, by adding millions to our record-setting $220-million opening day.
It’s certainly very, very exciting to see the kind of enthusiasm being expressed by our customers.
At times, shipping great products can feel like the end of a race, like we crossed some kind of finish line. However, I think we’re really just at the beginning. This is a new race and it’s a new era for us.
In my letter to shareholders last month, I wrote about a fundamental shift underway at Microsoft. Over time, the full value of our software will be seen and felt in how people use devices and services at work and in our personal lives that include our software.
This is a major shift that impacts both what we do and how we see ourselves transitioning to be from a pure software company to a company that’s great at software, but gets expressed through devices and services.
There are two primary ways we’ll go to market. The first is by selling devices that have built-in end user services. And the second is with additional value-added services for our enterprise and business customers.
Delivering devices with end user services means that in all the work we do with our partners and on our own devices, we will relentlessly focus on delightful, seamless experiences across hardware, software, and services. At times, we — Microsoft — will build specific devices for specific purposes, as we chose to do in the innovations with Xbox and Microsoft Surface. However, our partnerships in the Windows ecosystem with our OEMs, the people like HP and Dell, Asus and Acer, Samsung, Sony, Toshiba, and so many more remain incredibly, incredibly important.
In the next year, there will be about 400 million Windows PCs sold in 190 countries and 109 languages to students, to moms, to small business owners, to retirees, business professionals, government workers, and the list goes on and on and on.
One size of hardware will not fit all, and our hardware partners, our OEMs, offer the diversity our customers expect so that every customer can find the perfect PC for them.
When you look at this stunning lineup, and many, many more great devices that are on the way, you can appreciate the value of that diversity.
I’m pleased to announce that the number of certified Windows 8 PCs has grown from 1,000 to 1500. Those new devices will really start to hit the shelves worldwide in the coming weeks and coming months.
We’re working really hard with our OEMs to increase, particularly, the supply of touch computers, which have been fantastic in the demand we’ve seen from end users.
Windows 8 PCs are the best PCs ever. They’re personal and they’re alive, as Ryan showed you, with the activity and people and information that’s most important to you.
Windows 8 brings together the best of worlds, the best of the PC and the tablet, the best of touch and the keyboard, the best of work and play.
When people choose Windows 8, they also can do so knowing that there is a great phone that’s designed to work in a similar way across the same services, share the same information. Windows Phone 8 does just that. It really is a smart phone that we reinvented around you, each individual user.
You can use other phones if you have a Windows PC, but Windows Phone is the best phone if you have Windows. And the Windows Phones now really have what I would refer to simply as “killer” hardware. Killer hardware if you look at what Samsung and HTC and Nokia and others have done with screens and cameras and audio, it’s phenomenal. And the Windows Phones are the most, most, most personal smart phones available on the market.
As we built new Windows devices, we developed and updated our consumer services to take full advantage of hardware advances to complement one another and to unify all the devices that people use in their daily life. So right out of the box, you can get a beautiful new Windows desktop, tablet, or phone computer that is connected to unique communications, productivity, and entertainment services from across Microsoft.
Office 2013 is a phenomenal example of that. It’s beautiful. It shares a similar style and clean design look as Windows 8. It’s designed for this new generation of Windows 8 touch laptops and tablets, and it works great with the stylus you saw earlier today.
There’s a first-class search experience with Bing on all Windows devices. Windows PCs include Bing News, finance, travel, maps, sports, and weather applications to keep you up to date on everything that’s happening in the world.
Internet Explorer 10 was redesigned for Windows 8. It’s fast, fluid, and really perfect for touch.
We showed you the redesigned MSN earlier this morning. It’s a great example of how not just MSN but all websites can choose to optimize for this new generation of Windows 8 computers.
We launched Outlook.com, a new, modern e-mail service that’s designed to work seamlessly on the Web and with Windows devices — Windows 8 and Windows Phone 8.
Ryan showed you SkyDrive that keeps your photos and documents in synch. Skype offers an incredible real-time communications experience that’s fast, that’s easy, that’s beautiful.
And there’s amazing entertainment with Xbox Music, Xbox Video, Xbox Games, and through SmartGlass, the connection with the Xbox itself.
Our customers will get the best of Microsoft in every new Windows device, as well as direct access to great applications from many developers, many, many hundreds of thousands of developers around the world.
We really are in a time of unprecedented opportunity. Developers now have 40 million reasons to build apps for the Windows Store, and they are hard at work and the number of new Windows computers and the number of new applications is growing every day.
Ryan mentioned that we’ve doubled the number of available applications in the Windows 8 store since the launch in October, and the store now does include great applications like the Weather Channel, Fox News, ESPN, Angry Birds Star Wars, the Kahn Academy, Bank of America, British Airways, Disney’s Agent P. game, and many, many more that on the way like Twitter and Dropbox.
I’m also thrilled to report that the Windows Phone Store now has more than 120,000 applications and we will have 46 of the top 50 applications available, including Pandora, here in the very near future.
While it’s certainly an exciting time for our consumer customers, it’s also an exciting time for our enterprise customers who are facing a number of important opportunities and challenges. Enterprise IT departments are tasked with deploying technology that helps land business strategy. They decide what solutions will make employees more productive, collaborative, and satisfied. They work to unlock business insight from business data.
And at the same time, employees, increasingly, have a voice in the technology they use at work, a trend that we commonly refer to as the “consumerization of IT.”
So IT departments must manage and secure corporate information that employees access across a growing number of personal as well as corporate devices.
To address all of these challenges, businesses turn to Microsoft. They count on world-class enterprise support from products like Microsoft Dynamics and Office and Exchange, SharePoint, Lync, and our business intelligence solutions. They rely on us to help them manage corporate identity and to protect and secure corporate data.
Increasingly, businesses are looking to Microsoft to realize the benefits of the cloud. The cloud continues to be one of our largest opportunities. Just think about it for a minute: All of the online services that people use today run on servers in data centers around the globe. The volume of Internet services used will continue to grow as people connect to the Internet from more devices for more purposes. That fuels more incredible growth in our server business.
Unique to Microsoft, we continue to design and deliver cloud solutions that allow our customers to move to the cloud on their own terms. For example, a customer can choose to deploy Microsoft Office or Dynamics in their own data centers and on their own machines, or as a cloud service being delivered from Microsoft or as a combination of both.
Office 365, our cloud offering, is on track to be one of our fastest-growing businesses ever. Organizations of all sizes are turning to Office 365 for world-class productivity solutions including companies like Toyota, the United States Veteran Affairs Department, Japan Airlines, the All India Council for Technical Education, which is one of the world’s largest cloud services agreements connecting millions of students and teachers in India.
With the newly released Windows Server 2012; Windows Azure, our cloud offering; and System Center, businesses can deploy applications in their own data center, in a hoster’s data center, or in a Microsoft data center with common security, management, and administration across all those environments with ultimate flexibility and ultimate ability to scale.
Our business customers tell us these capabilities are critical to harnessing the power of the cloud so they can reach new levels of efficiency and tap new areas of growth.
There’s a remarkable amount of opportunity ahead. As we enter this new era of devices and services, there are several distinct areas of technology that we’re focused on driving forward. Leading the industry in these areas over the long term will translate into sustained revenue and profit growth well into the future.
The first area is new form factors that have, increasingly, so to speak, “natural” ways to use them — touch, gestures, speech, pen, and handwriting.
The second big area is making technology more intuitive and able to do what we mean and act on our behalf instead of at our command by using new technologies in the area of what we call machine learning and big data.
Third is building and running cloud services in ways that unleash incredible new application opportunities for businesses and for individuals.
Fourth is firmly betting and establishing one platform, Windows, on the PC, the tablet, the phone, the server, the cloud.
And the last is really to deliver life-changing improvements to people with new scenarios that help us learn, work, play, and socialize with one another. Inventing those new applications, delivering them on these new devices, and sustaining them with the cloud will be key to our future.
Your company, Microsoft, is uniquely positioned to lead in these areas, given the breadth of our devices and services offerings as well as our large, global partner and customer base and the growing Windows ecosystem.
This really is a new era in our industry and for our company. It’s an area of incredible opportunity for Microsoft as well as the millions of developers building for our devices and the over 640,000 companies that we partner with to serve our customers.
We’ve come a long way in the last year and I cannot be more excited for what’s ahead. It’s always an interesting and fun time in the technology business given the pace and rapidity of innovation, but we’ve never had a stronger product line. I thank you for your support and investment, again, in Microsoft. And we look forward to great things over the course of the next few years. Thank you very much. (Applause.)
PETER KLEIN: Thanks, Steve. We will now proceed with the Q & A session. I’d like to welcome to the stage Bill Koefoed, general manager Investor Relations, who will moderate the Q & A.
BILL KOEFOED
: Hi. An Investor Relations team member is in each aisle with a microphone. We’ll take as many of your questions as time allows. In order to maximize the opportunity to address as many questions as possible, please limit your time to one minute and one question of interest to all shareholders.
Note that we also solicited questions via e-mail and our Investor Relations website, so those of you who could not attend in person can also ask questions. So we’ll be addressing some of these which have been submitted electronically.
For those that have been submitted electronically and not answered today, we will reply directly via e-mail.
Let’s start with the first question.
QUESTION: Good morning, my name is Evie Schwerin (ph.) and I bought your stock in 1992 and I thought this is wonderful, it went up, it split, it went to 100, and I thought, wow, this is going to be my retirement, like a lot of people here. And then it dropped to 30 and it’s been there for ten years. So my question really is: Why should I keep it? And, please, no sales talk, just facts about the stock.
STEVE BALLMER: Let me start and then I’ll let Peter give some specific numbers. If you look over the time, ma’am, that you’ve owned our stock, we have done, I think, really a pretty phenomenal job in driving unit volumes of our product.
If I could think back as far as ’92, I was here, the number of Windows units sold per year would have been under a million. I’m going to look at Bill on this. We now are at about 400 million. That’s a lot of progress.
If you look at our revenue and profitability, those numbers have grown relatively consistently to quite large numbers over the period of time.
As a management team, we say our job has got to be to do a few things. It’s got to be to do innovative products that people really embrace, to build those products on business models that allow us to generate profit, and then to grow revenue and profit over time based upon that innovation.
The stock market is kind of a funny thing because there are times when we seem to be doing those things very well and the stock market likes it. There are times when we’re doing those things well and the stock market would seem to value it less.
We keep very focused on delivering long-term innovation and long-term profit growth. And when the market — whether the marketing is recognizing that or not, we also try to do a good job for our shareholders by returning to you through dividends and through share buyback, in fact, opportunities to receive a return, if you will, on your investment.
I understand your comment. And, yet, I think if we stay focused in on the big prize which is innovation, revenue, and profit growth, we will have a chance to really prosper together.
PETER KLEIN: The only thing I would add to that, that’s a great statement, our approach to creating shareholder value, and hopefully that gets reflected in the stock price, is to participate in large and growing markets where there’s really growth dynamics that underlie that, build really innovative and compelling products that are differentiated so we can take share in those growing markets. And if we do that, it stands to reason that we’ll have great economic results.
And it’s clear that we’re participating in the great industry trends now. You saw the proliferation of devices, cloud services, the explosion of big data in enterprises and data centers in enterprises and on and on. So if you look at the size and growth trajectory of the markets that we’re participating in, they’re large and growing rapidly, double digits across the board.
To the extent that we build a portfolio of products that are differentiated and unique, and we tried to show you that today in Ryan’s demo, then we should take share in those markets. And it stands to reason that, then, we can grow the long-term profits of the company.
BILL KOEFOED
: Thank you. Let’s move to our next question over here.
QUESTION: My question is regarding the next generation, the decision-makers coming, the youth. How are you measuring Microsoft’s ability to get that generation to hear what products and services you have? They’re all Apple-focused. My daughter in elementary school had an Apple computer given to her by Apple and her experience prior to today’s meeting has all been Apple.
STEVE BALLMER: It’s a tough competitive market out there, and we certainly think that with the products that we and our partners are delivering to market, both on the device side as well as the services side, we have an opportunity. In the grand scheme of things, we sell a lot of devices, about 400 million devices with Windows from us and our partners, maybe a few more when you add phones. Apple’s numbers are running a few hundred million a year, but it’s a highly competitive game with them and with other players in the market, with Google, with Amazon, with many, many others.
We’ve delivered our best product lineup ever. We have the best integrated services ever. We’re doing the most marketing we’ve done ever. And, in fact, I don’t think of it as a lost generation if you look at kind of where most people’s homework gets done, it gets done with Microsoft Office, frankly, more typically on a PC than on an Apple device, but we have our competitive challenges.
If you, for better or for worse for some parents, look at where most video games get played, it gets played on a Microsoft device, and I’m very pleased about that and we’re trying to bring more content to market that entices families and girls and women into kind of the family entertainment environment that Xbox has become.
So I think we have a good product lineup, we’re working hard and we recognize we also have good competitors.
BILL KOEFOED
: Okay, let’s take our next question down here.
QUESTION: Yes, I’m Robert Schmidt (ph.) and every time I see something out of Brussels, Microsoft is getting sued. Now, it seems like it’s almost automatic before they even know what you’re putting into your program. And it’s — do you plan on usually settling for one or two million out of court, or are you going to fight them this time?
And the last thing is: Public politics. I wish you people would stay out of public politics because I think you’re splitting your support 50/50.
STEVE BALLMER: Brad, maybe you take that?
BRAD SMITH: Sure. Well, appreciate the question. If somebody were to give us the opportunity to resolve our latest issues for $1-2 million I’m sure we would be very interested. (Laughter.)
I think the reality is we have a process that’s ongoing. We’ve been very up front on the latest issue in Brussels and we’ve been very explicit in saying that in our view, it’s actually different from the issues that we faced in Brussels over the last decade.
In part, it resulted from a mistake that was made inside the company. We had an obligation under an agreement that we entered into in 2009 to update certain computers in Europe. And we failed to do everything that we were obligated to do. And we decided with Steve, with Bill, with everybody else this summer that we were going to own up to our responsibility, be honest in talking to people about what we thought we had done well and what we wish we had done better.
We hope that that will be taken into account when the European Commission decides what amount of fine to levy and we’ll just have to see.
We regret that the mistake was made and we’ll also say that we think we’ve been more forthright than just about any company has probably been in recent years in dealing with regulators in this kind of situation.
When it comes to broader questions of public policy, we do focus on those issues that we think are important to our business. We don’t think it’s our role to take a position on anything under the sun. We don’t think it’s our role to take a position on things that people happen to support as individuals in their personal capacity. We focus on the issues that we think will help the company grow. We focus on the issues that we hope will help the value of the company grow.
There are times when there is a split in opinion, you’re absolutely right about that. There are times when it’s often tempting for companies to just keep their head beneath the parapet and avoid the controversy because I think you’re right to point out that controversy does bring with it certain challenges.
But on certain issues like improving education, addressing immigration, ensuring the protection of intellectual property and free trade around the world, we feel that they’re quite fundamental to our ability to keep attracting great people, keep building great products, and keep reaching customers everywhere around the world.
So when it comes to those issues, we actually do think that it’s worth standing up and stating our views. And we do generally find that people respect us for doing it, especially when we try to be as forthright in that area as we’ve been, for example, in Brussels over the last few months.
BILL KOEFOED
: Great, let’s take another question from that same aisle.
QUESTION: I have so many questions, but so little time. As usual, the presentation is impressive.
I was interested in the fact that Microsoft has a youth program to get people in. But I want to ask about the H-1B visa program where Microsoft is willing to pay a premium to get these. And then the article in the Seattle Times, there are researchers who dispute or disagree with Microsoft’s rationale for requesting these.
As a little side story, recently within the past month I met a guy who was out buying a new car. Had an MBA from a large college, university back east, was in his low 50s, can’t find a job anywhere around here.
As it happened, a week or so later, I’m in line to buy something at Sears, and because my wife and his are the same nationality, we chatted. He says he’s got two computer-related degrees from MIT and he can’t find a job around here. Yet Microsoft is saying they have to go abroad.
This country has over 300 million people with some of the finest universities in the world and Microsoft is willing to pay a premium to get people from other countries, of which a certain nation has many, many on the eastside here.
How can you rationalize and balance this out when this country has over 300 million people with fine universities and I, myself, have met people just recently in their lower 50s who can’t find a job and you guys got a youth program. You need a youth program for people in their 50s to hire them. And you can match the salaries they want. (Applause.) I’d like a response to that.
And just to close, I’ll leave and let you respond how you may wish. But I’d also like to know, within a billion dollars or so, how much has Microsoft paid out in legal fees here and abroad plus settlements, fines, and penalties? Thank you so much. (Applause.)
BRAD SMITH: Well, since we say ask one question, why don’t I focus principally on the question you spent the most time on?
Look, we focus on the numbers. It’s a big country, there are 300 million people in the country, but we know this: Every year the economy is requiring another 120,000 people with a computer science degree, a four-year computer science degree. We’re part of that growth in demand for those 120,000 people. Right now, if you take all of the great, or not so great, all of the universities across the country, they’re only producing 40,000 computer science graduates each year. There’s a shortage.
And the numbers tell it. I mean, the unemployment rate for people with electrical engineering or computer science degrees is about 3.2 percent. Generally, for a long time, economists have said that full employment is about 4 percent, which means anytime you see an unemployment number below 4 percent, it tells you that you have a shortage of people and you, frankly, have inflationary pressure on wages.
I often meet people who, like you, make a good point. They say, “Yes, but you haven’t met Joe.” And if in 2008 in the presidential debates everybody was talking about Joe the plumber, you know, in 2012, it’s Joe the computer science guy.
I know Joe. Joe’s unemployed, why, you can’t have a problem because if you had a problem, Joe would have a job.
And of course the answer is for any specific individual, there may be some specific circumstance that explains a specific result in their life. But when we look at the numbers, the numbers don’t lie. We have open jobs today, over 6,000 in the United States, that’s 19 percent more open jobs than we had a year ago. We have over 3400 jobs in the engineering discipline. That’s 34 percent more than we had a year ago.
We want to fill those jobs, and we are absolutely prepared to pay competitive, top dollar to do so. And we are striving. And what we are doing is absolutely not unique. You can talk to any company in our industry, you can talk to big companies, you can talk to small companies, you can talk to other companies that aren’t in the software industry, but rely on software for their business processes. And they will all tell you the same story: They’re all facing, overall, a shortage of skilled engineers and people with computer science degrees.
And so, fundamentally, not just as a company, but as a country, we’re going to have to decide do we want to fill these jobs here or do we want to move them somewhere else? We said we’d like to fill them here. And so what we proposed is that we fill them here by encouraging the country to add some more visas, to charge more for the supplemental visas, and use the money to make the investments that are needed to improve education in this country. To get computer science into high schools.
Right now, out of the 42,000 high schools in the United States, only 2100 of them even offer the advanced placement course in computer science, and that’s 25 percent less than the number five years ago.
Let’s invest in computer science departments in colleges. Let’s address college completion challenges, and let’s help people in this country, younger and older, to get the skills needed to fill the jobs.
But that’s why we do it. And even though we all know a Joe in our life or somewhere in a supermarket or somewhere else, the reality is we’ve got to look at this from a broad perspective, and we think that the picture is quite clear.
BILL KOEFOED
: Let’s take the next question from this aisle over here.
QUESTION: Good morning. If you compare, if you look at Apple and Google stock and look at Microsoft stock, there is a huge difference. And what are you going to do to get up there? Why is Microsoft struggling while Apple and Google are thriving?
STEVE BALLMER: At the end of the day, ma’am, I would point probably to some of the dialogue we had earlier, both about stock price and competition. We have a very strong product — to grow, to grow our stock price, to grow our stock price relative to competition is all about pushing out new innovations and competing well and growing profit. We’ve had strong growth in our Bing search service, which we’re pleased to see, revenues rising at a very nice clip. We’ve got more work to do, but we have a very competitive product that is performing very well in the marketplace.
The lady asked the question about the Apple generation or whatever precisely the question was, and we say, hey, look, we have a lot of opportunity to take market share, to take market share in phones, to take market share in tablets. We see nothing but a sea of upside. We appreciate that you’d like us to realize it, and we’re after that with all of our heart and best thinking and innovation. (Applause.)
BILL KOEFOED: Let’s take the next question from this aisle.
QUESTION: Good morning, gentlemen. Congratulations on the new Surface and Windows products. I spent Thanksgiving helping my sister spec out a new laptop, and convinced her to get Windows 8. And yes, she was skeptical, but yesterday I got a super long e-mail from her on how great and excited she was with that product.
My question has to do with the Microsoft retail stores. There seems to be a lack of transparency into what the purpose of those stores are for, and what type of investment is being made and what type of return.
For example, just recently I read where Apple stores are doing about $6,000 per square foot in sales. My background is in retail. I moved here in 2000 to work for Eddie Bauer, and helped them get their retail growing from, you know, less than 100 to over 600 stores. So when I walk into the Apple store — or the Microsoft stores, I look and I’m not sure really what the purpose is.
And when Microsoft opened their first store, as I’ve followed the industry interviews in magazines, there was a lot of talk about, well, if there’s an Apple store there’s going to be a Microsoft store nearby, and that reminded me a lot of what Tully’s was trying to do when they first started was if there was a Starbucks store we’re going to open nearby rather than spend the effort to really define the store, tailor to the customer and then grow the stores in markets that are going to work.
So my question is really, you know, why is there a lack of transparency? What’s the purpose of these stores? Because if it’s just simply for marketing, Microsoft’s a tech company, it’s not a retail company. And so —
BILL KOEFOED: Sir, let’s wrap up your question.
QUESTION: Oh, I’m sorry. So it’s just what type of a return is being made, you know, what are the purposes of these stores?
STEVE BALLMER: I’ll be I think completely transparent. We want to sell lots of devices on which we make money: Windows Phones, Windows PCs, Xboxes. In appropriate cases we’ll sell the surrounding software and services. We’ll provide customers support and training who need that; that’s something we think we can do to both build appreciation for our devices, as well as make a profit doing it. So there’s no question.
You can open one or two stores, quote, “for marketing,” unquote. We’re 31 stores. We’re driving ahead vigorously, and we’re there to sell, sell, sell, help, help, help, and through help sell more. Less there be any doubt, kind of the number — I was out last week. I visited six, seven of our stores last week — and we set one up here, a little mini one for the people who came to the meeting today — but we’re just talking to them, okay, how many Surfaces did we sell, how many Windows PCs did we sell, how many Xboxes, how many phones, what do we need to sell more, what kind of training are people asking for, are we able to do it in the store, are we keeping our people busy, are we engaging the customers.
We had a bunch of people bringing in non-PCs that they didn’t buy in our stores; great, we’ll fix them, because we want people to have a great experience with Windows.
People bring in non-Windows devices, and we say, great, we’ll help you fix them, but remember next time we’re right here, the Windows device is going to be a better solution for you.
So it’s not real complicated, it’s about selling. We make a good profit on every device we sell. We’d like to sell even more, and we think by and large there’s an opportunity to serve the consumer better in a lot of countries than the consumer’s being served today on the Windows side to complement what other partners like Best Buy and Wal-Mart are doing. And we’re making a full-out effort to go do that and have that be beneficial, particularly to Windows and Windows Phone market share.
BILL KOEFOED: Great, let’s take our next question over here.
QUESTION: Going back to consumer products — my name is Joe by the way, but not a plumber — (laughter). I recall a somewhat younger Mr. Gates standing in front of a group — I’d say it was five years ago, it probably means 15 years ago — holding up something saying this is the future of computing, a tablet. We were so far — that idea was so far ahead of its time, and now we’re playing catch-up with the iPad.
I also recall him at one point saying you need to be able to talk to your computers. And I love my Windows Phone but I’m a little jealous when I see my friends with their iPhones using Siri I guess it is, which seems to be a somewhat better voice recognition software.
I’m really curious about innovation at Microsoft. I know you’re going to tell me we spend a ton of money on R&D, but I really wonder what are we doing to create an atmosphere that encourages and supports innovation, the things that are going to be coming next. Thank you.
STEVE BALLMER: Well, I think we’ve done a lot of good work. We have competitors who also do interesting things.
You know, I think there are a probably a couple things that are worth noting. Number one, I do encourage you to really use the voice recognition on your Windows Phone. It’s really — I was going to do a demo but it seems like it might not reverberate; I can’t show it that well. But the voice recognition works super well. The way you do voice and sort of physical gesture recognition with the Kinect on Xbox works really, really well.
I think from both software, the kinds of things we’ve done in the new Windows 8 and Windows Phone user interfaces in terms of bringing things alive with activity, integrating with the cloud, I think is really innovative. I’m unapologetic about that.
I do think there are things where, you know, with 20/20 hindsight we’d do things a little bit differently. Bill did hold up a tablet whatever umpty-ump number of years ago, and not because we don’t have good hardware partners but sometimes getting the innovation right across the seam between hardware and software is difficult unless you do both of them. Maybe if we had started innovating — which is what we really did with Surface. We’re innovating on the seam between hardware and software. Maybe we should have done that earlier, maybe that tablet would have shipped sooner, but we were also building a good business working with those partners and serving a lot of needs.
What we’ve said to ourselves now is there’s no boundary between hardware and software that we will let build up as kind of an innovation barrier, and you see it with Kinect and you see it with Surface.
We’ve done this a little bit differently in the phone case where we actually specified a pretty kind of complete set of subsystems in the phone, and then our partners have innovated on top of that. So we’re doing this in a number of different ways from a hardware perspective.
If you look from a pure software perspective, you know, I feel pretty good about our level of innovation stacked up against anybody, and from a hardware/software perspective we’re really pushing forward aggressively on that boundary.
BILL KOEFOED: Let’s take our next question there.
QUESTION: My name is Susanne Mclegga (ph) from Whitefish, Montana, and my question is — or partly a statement, I understand about your global citizenship and also that you’re trying to teach disadvantaged and advantaged students about computers with advanced placement computer courses. What about your average student, the B, C average student that comes from middle class families that may not have the opportunity to purchase or get these courses? Those students are the ones that usually think out of the box, and may be the ones that you need for your future in Microsoft.
BRAD SMITH: You know, you raise a great point, and we are trying to address that part of the population. Almost by definition when you try to reach 300 million people, you’re going to reach people who in many cases are average or below average or above average just across the board.
And specifically in the United States what we’ve created is a program that focuses on so-called IT Academies, and we’re partnering, for example, with a number of state governments. I don’t know whether Montana is actually one of them. But it’s very much focused on reaching students in schools, oftentimes students who don’t come from a family that can afford to have a computer at home, but these are schools that want to provide access to computers in schools. It’s designed to help students learn the basics first in how to put a computer to work in their life, and it’s focused on certification in a number of instances for students who then want to go on and get a certificate. It may be something as simple as one of our Office applications or it may be something that involves a more complicated aspect of one of our products.
The largest certifier in the United States, measured by the number of certificates issued each year, is actually Microsoft Corporation. We just work with so many governments and so many nonprofit groups to reach so many people, and by definition when you reach that many people you reach all kinds of people, and hopefully we’ll do precisely what you’re suggesting is what we’re striving to do.
BILL KOEFOED: Our next question from over here.
QUESTION: Yes, I want to —
QUESTION: (Inaudible/crosstalk) generally fall through the cracks, and the children that are in advanced placement or learning disabled or a little bit disadvantaged are given a lot of the help that they need. And so what I’m trying to bring forth is that someone has to step up and speak for these children that are average students so that they can be the ones that will be our caretakers and our thinkers and our helpers in the future.
BRAD SMITH: That’s great. Appreciate your feedback.
BILL KOEFOED: Next question.
QUESTION: Yes, I just wanted to support one of the comments made. It was about the bringing in people from other countries to work at Microsoft. Well, my son is a vice president of sales at Oracle, and they were recently expanding their business in the sales business, and he had to find eight managers. I cannot tell you how difficult it was for him to find eight competent managers and how long it took. So I want to say that what you said is so true, not only for Microsoft but for other software companies like in the Bay Area.
In addition, I want to — I heard the — Apple brought up a lot, but let’s look at we are also pretty innovative. Look at the Bellevue Mall. They had to copy our store. I mean, think about that.
BILL KOEFOED: Thank you.
QUESTION: And then the other thing I want to say is how much every — that you people listen, that — how easy it is for myself to talk to a manager at Microsoft. It’s easy, and they’ll sit down and they’ll listen to you, and they’ll make the improvements that you talk about.
And one other thing is how we improve this meeting.
So I just wanted to just say that. (Applause.) Thank you.
BILL KOEFOED: Thank you.
We have time for two more questions, but I want to say that after that, Brad, Peter and I are going to stay around, so those of you who are number three and number four in the aisle, and we’ll stay for you guys afterwards as well.
Next question.
QUESTION: Let’s see, first, I want to say it’s good to see you’re still around, Bill. I think I first met you in about ’89 at the Works 2.0 ship party, had a buddy that was a developer for you.
I tend to find that I’m much ahead of the population in the things I want to do, and one of the things that I’m finding, and I think it’s becoming more prevalent in our society, is multiple gaming systems in the house. I currently have three Xboxes and I’m buying a fourth one.
The way licensing is currently set up it’s difficult to share downloaded content across the devices for myself, my son, my daughter. We’ve now got my wife involved as well, which is why we’re looking at another Xbox.
Do you have plans to work with the agencies that control that type of licensing so that things like we have a family Gold membership, to be able to share the software across that family membership platform rather than having to buy four different copies of each add-on to be able to have them so everybody can play them on every game system?
STEVE BALLMER: First time anybody’s ever raised this issue with me, so I’ll plead ignorance, write a note, and ask our guys kind of what we’re thinking, what we’re hearing, and what possibilities exist. So I’m going to just take it as feedback.
BILL KOEFOED: If you give your card to Todd, he’ll get back to you. Thank you.
QUESTION: One other quick question, if I could. I discovered two days ago the IE interface for the Xbox, I have a 17 acre farm with a video security system, and I use some web encoders for my video. And I found that I don’t have the ability to look at the video because I can put in the IP, bring up the stuff, I can do everything except look at the video. I can program the encoders but I can’t download the H264 drivers and things. I assume that you have a plan in the near future to be able to take external things and add them in.
STAFF: Do you want to give me your contact? We can address that kind of a question. (Laughter.)
BILL KOEFOED: Thank you. Okay, let’s take —
STEVE BALLMER: That’s the right answer. (Laughter.)
BILL KOEFOED: Let’s take this last one. And like I said, Brad, Peter and I will stay around afterwards to follow up with those of you who still have questions.
QUESTION: Hi. Gene Craig (ph).
I think you guys need some good comments, some good positive comments for your work. I look back and I see you going through WordPerfect into Word, I see you going through VisiCalc into Excel, I see you developing Bellevue, Overlake, Medina, Seattle, the state of Washington, and the United States. And I see you now expanding your interests into world causes. How many times have we said, innovate? You guys are innovating. I wish you success.
I was there with the IPO — (applause) — and I tell you this, on my behalf and I think of the people here, thank you very much. Keep innovating. (Applause.)
BILL KOEFOED: Thank you, everyone. Thanks so much for attending this meeting. Have a great day. And like I said, Brad, Peter and I will be around. And for those of you who have additional questions, please feel free. Thank you so much and have a great day.
END
