News

Ballmer Talks Up Windows 7 at Financial Analyst Meeting

• By Kurt Mackie
• 07/30/2009

Microsoft executives on Thursday explained the company's business and prospects at the 2009 Microsoft Financial Analyst Meeting in Redmond, Wash.

Chief among those executives was Microsoft's CEO Steve Ballmer, who noted at one point during the presentation that Microsoft's fourth quarter report, released last week, reflected a "wild quarter." Microsoft's revenues were down across all business segments for that quarter.

While Ballmer stressed the generally bad economy as a reason for the revenue decline, he added that "if you look at the year in aggregate, we really had a great year." For the year, Microsoft lowered its costs by $3.1 billion below its guidance, Ballmer said.

The bad economy is seeing businesses shift their strategies, and, in some cases, they're not buying, Ballmer said. In particular, there is a shift toward annuity licensing of Microsoft's software. He noted that initially, annuity licenses will carry less revenue when first booked. The trend shows up in Microsoft's unearned revenue figure, where the unearned revenue is a form of financing by Microsoft. Businesses are trying to react to the down economy by paying over time.

Ballmer noted some milestones for Microsoft, including the Windows 7 release-to-manufacturing dates, announced last week. Microsoft saw more than eight million downloads of the release candidate version of Windows 7, Ballmer said, although it may not be an indication of Windows 7's future success.

Surprisingly, Ballmer revealed that "for the past 12 months, I've actually been running our Windows business." Many thought the Windows reigns were in the hands of Steven Sinofsky, who was promoted to president of the Windows Division earlier this month.

Microsoft makes most of its Windows desktop money off the sales of new PCs sold to businesses, followed by consumer buys, in developed markets. There are also some growth opportunities in emerging markets. China now buys and uses 15 percent of the world's PCs, "and that number is growing," Ballmer said. Microsoft has no control over whether the Chinese or Americans buy new PCs, Ballmer told the analysts.

Microsoft did make a mistake when it lowered its Windows prices for emerging markets, Ballmer said. "We are going to readjust those prices north with Windows 7," he explained.

Ballmer brought up the troublesome issue of netbooks, but he still didn't fully explain Microsoft's business plans with netbooks and Windows 7. Microsoft has achieved a high attachment rate (around 90 percent) of Windows on the low-cost, low-tech machines. However, Windows-based netbooks currently are sold only with the XP Home edition. Such sales bring Microsoft less revenue per unit than Windows Vista-based laptop sales.

The one new concept Microsoft appears to have for selling Windows 7 on netbooks is something called "ultrathin" netbooks, which Ballmer described as "high-power, high performance devices" that will come next year. Ultrathins will be priced higher than netbooks, which typically sell for around $300, he explained.

Last month, Microsoft tried to distinguish netbooks from mobile "consumer Internet devices," which might typically use Microsoft's Windows Embedded CE OS or a Linux OS.  

Microsoft plans a Windows up-selling strategy, from XP to Windows 7 Starter edition and on up the product line. Ballmer dismissed threats from Google's Linux-based Android and Chrome OS. He said that Microsoft has plans to compete with Android this year on netbooks. As for Chrome OS, Ballmer professed ignorance. Google has suggested that this new "browser operating system" might appear on netbooks in the second half of 2010.

Ballmer also dismissed Apple as a threat to Microsoft's OS market share. He said that Apple only sells about 10 million machines and that "Apple's share globally costs us nothing." However, in the crowd of analysts, Ballmer did note that the majority of the logos facing him were Apple's.

"We have a low share in the investor audience…we have more apple logos than PCs," Ballmer quipped. "That's OK, as long as you're using [Microsoft] Office."

Ballmer criticized the Linux OS as providing no incentive to hardware vendors. He said Microsoft believes in proprietary and open software, but "you can't change our OS." It's hard to build momentum when everything is chaotic, Ballmer said of Linux.