Anyone who has seen Microsoft’s seamless, touch-based Vision of the Future was likely still reeling with enough stars in his or her eyes to unquestioningly soak up the optimism CEO Steve Ballmer expressed at the company’s annual shareholders meeting on Tuesday. The shareholders themselves, it seems, felt more concern than optimism. After Ballmer delivered a glowing report of the company’s synergistic growth from the cloud to mobile devices, many stockholders vocally worried about the company’s capital allocations and stagnant stock price.
One of Microsoft’s key technological advances, according to Ballmer, has been 45 percent growth in its entertainment and device division, with almost $9 billion in resulting revenues. The Xbox is becoming an entertainment hub for families, he explained, sharing anecdotes from his own life and remembering a time when people thought Microsoft was foolish for pursuing a foothold in the gaming industry. That foothold has turned into near global domination, with the Xbox console leading the U.S. market and poised to lead the international market in the near future, he said.
Xbox’s game-changing Kinect system, said Ballmer, was the result of collaboration across many divisions of Microsoft; he responded to a shareholder question about splitting the company to increase its value by saying that Microsoft does not invest in things that are “idly independent.”
Ballmer also discussed Microsoft’s recent acquisition of Skype and its partnership with Facebook, perhaps in an effort to assuage shareholders questioning the company’s large cash balance on hand. According to The Wall Street Journal, Microsoft has $57.4 billion in cash on its books. The catch with paying out that cash to shareholders is that 89 percent of the money is invested abroad, and subject to taxes if repatriated.
After a few questions on capital allocations, the normally silent Bill Gates put the lid on the discussion by explaining that the most important thing to be done in increasing Microsoft’s stock value is to focus on profit stream and building new products of high value. The choices in paying out those profits are less important than maintaining the company’s ability to take big risks by beefing up its balance sheet, he explained.
The shareholder meeting was held the day after Warren Buffett announced a $10.7 billion investment in shares of IBM (giving him a 5.4 percent stake), citing the company’s ability to execute its strategy and its fair treatment of stockholders as motivating factors in the deal. IBM stock has risen 28 percent in 2011, and this investment is Buffett’s first foray into technology. Microsoft stock, trading at just under $27 a share, has remained relatively stagnant over the last several months.