Microsoft Sales Are Up, and Gates Is Off

There was little sentimentality at the co-founder's last meeting as full-time chairman, but plenty of bullishness from Ballmer

by Jay Greene

In his last shareholder meeting as a full-time employee, Microsoft (MSFT) Chairman William Gates spent little time dwelling on the significance of the moment. It's been more than a year since Gates said he'd step down from his role at Microsoft to focus on philanthropy (BusinessWeek.com, 6/16/06) beginning July 1, 2008. But it was only toward the end of presentation at the company's annual meeting on Nov. 13 that Gates briefly reflected. "This is the dream we started Microsoft 30 years ago to pursue," Gates said of the long-term bets being placed by Microsoft researchers. Next year, he noted, he'd be at the meeting as a "part-time chairman."

As the company heads into the final year of Gates' tenure, Microsoft is regaining part of the luster it has lost since the beginning of the decade. It still trails rivals such as Google (GOOG) and Apple (AAPL) in key new markets, including online advertising and digital music. Still, sales jumped 27% in the quarter ended Sept. 30, a gain analysts consider astonishing (BusinessWeek.com, 10/26/07) considering Microsoft's size.

Buoyant Shares and Sales

And CEO Steven Ballmer said planned introductions of products—ranging from the second generation of the Zune digital music player to software developer tools to servers for running corporate networks—will help the company continue growing. "I believe we've laid the foundation for significant growth for Microsoft," Ballmer said.

That, coupled with the $31 billion returned to shareholders last year through stock repurchases and dividends, has helped push shares to levels not seen since the early part of the decade. Earlier this month, the company's stock rose as high as $37.50, the highest since July, 2000. "We're confident we can continue this momentum throughout the fiscal year," Ballmer said.

Indeed, shares closed on Nov. 13 at $34.46, up $1.19 for the day and almost $5 since the beginning of 2007. Recent results have been buoyed by better-than-expected PC sales, which, in turn, boost sales of Microsoft's Windows and Office software monopolies. Researchers at Gartner (IT) are projecting 11% growth in PC shipments in 2008 and 11.6% growth in 2009. Microsoft's Halo 3 video game title scored the best entertainment title opening ever when it debuted Sept. 25.

10,000 millionaires

What's more, Microsoft isn't standing by as Google seeks to widen its dominance of online advertising. Microsoft made its largest acquisition ever this year, buying Internet advertising network aQuantive (BusinessWeek.com, 5/18/07) for $6 billion in May, to expand in the burgeoning market for selling and placing ads on Web sites. It also beat out Google in a contest for a stake in the social network Facebook (BusinessWeek.com, 10/25/07).

Like most annual meetings, Microsoft's is largely a scripted affair with Chief Financial Officer Chris Liddell zipping through an agenda that included introductions of directors and brief presentations of the handful of matters on which shareholders vote.