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Microsoft Pri0

Welcome to Microsoft Pri0: That's Microspeak for top priority, and that's the news and observations you'll find here from Seattle Times reporter Sharon Chan.

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July 24, 2008 8:47 AM

FAM: Ballmer's big perspective

Posted by Benjamin J. Romano

About 250 financial analysts have gathered at Microsoft's Redmond headquarters to hear from the company's top leaders, starting with Chief Executive Steve Ballmer, who is on stage now. A link to a live Web cast of the event is here.

Microsoft announced a significant shakeup late Wednesday, including the departure of longtime executive Kevin Johnson, who headed the company's huge Platforms and Services Division. Ballmer also sent an e-mail to employees yesterday outlining his priorities for the 2009 fiscal year.

Ballmer started out telling the investors and analysts in the room that he's with them:

Being a substantial Microsoft shareholder, "I am deeply concerned about where we're going and being responsible about shareholder interest," Ballmer said.

Check back for updates from Microsoft's Financial Analyst Meeting throughout the day.

Update, 9:15 a.m.: Ballmer has covered a lot of territory in 22 minutes on the stage. One big issue for this audience and for investors everywhere: The stock price. Why is it such a laggard? Why does the company's price-to-earnings ratio trail its peers in technology and the S&P 500, despite growing profit by 18 percent a year, on average, for the last six years.

Ballmer didn't say exactly why he thinks the stock has been stuck, but he did list the issues he thinks have the greatest impact on share price:

The Windows PC engine;

Growth opportunities in enterprise;
Technology shift risk;
Success in online and mobile;
Earnings, return of cash, willingness to invest.

Incidentally, the company's shares are down 85 cents, or about 3.2 percent, to $25.58 in midday trading.

Update, 9:45 a.m.: One of the biggest topics on investors' minds today is Microsoft's strategy for online. The company continues to increase its investment in this broad area. We'll hear more throughout the day from executives directly overseeing the various businesses that are touched by the online shift (it's pretty much all of them), but just now, Ballmer laid out the size of the opportunity and why Microsoft has to pursue it.

"Everything in the world that can move to be delivered and embraced over an IP network -- over the Interent -- will be," Ballmer said.

Everything you read, watch, want to communicate is going to happen over the Internet: TV, books, magazines, phone calls, shopping, advertising, online customer service, content, community, commerce, he said.

"The whole world goes digital. ... The size and magnitude of that is really unbelievable," Ballmer said.

The digital transformation is fundamentally "as much a software opportunity as anything else," he said. Software, of course, is Microsoft's expertise, which is part of what gives him confidence in the company's ability to play a major role in the online opportunity.

Why go after it? Ballmer said at Microsoft's scale -- more than $60 billion in revenue during the just-ended fiscal year -- there are few remaining opportunities that can have a major impact on the company's growth rate.

"There's at least $1 trillion just of media, communications and advertising -- not all of which we can capture -- but we don't have a lot of trillion-dollar markets that are being transformed," Ballmer said.

That opportunity, to Ballmer, justifies the investments the company is making now. The $1.2 billion operating loss in the company's Online Services Business last year was about 5 percent of total operating income, he said.

"But the amount of economic value that we have the opportunity to create, is certainly at least 40, 50, 60 percent or more of our total economic value today," he said. "... I think it is a very good risk-return."

While the opportunity extends to nearly all of Microsoft's businesses, Internet search is the tip of the spear -- the front door of the Internet.

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