Microsoft Corporation - Shareholder/Analyst Call

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Microsoft Corporation (NASDAQ:MSFT) November 15, 2011 11:00 AM ET


William Henry Gates - Co-Founder and Chairman

Unknown Speaker -

Bill Koefoed - General Manager of Investor Relations

Steven A. Ballmer - Chief Executive Officer and Executive Director

Bradford L. Smith - Senior Vice President of Legal & Corporate Affairs, General Counsel, Chief Compliance Officer and Secretary

Peter S. Klein - Chief Financial Officer


John Harrington

Larry Dohrs


Ladies and gentlemen, welcome to the 2011 Microsoft Corporation Annual Meeting of Shareholders.

Peter S. Klein

Well, good morning. Welcome, everyone. I'd like to call the 2011 annual shareholder meeting to order. I'm Peter Klein, Chief Financial Officer of the company. I'll be serving as the chair of this meeting. Brad Smith, General Counsel and Executive Vice President of Legal and Corporate Affairs, will be serving as secretary. I'd like to introduce Bill Gates, Chairman of the Board, and Steve Ballmer, Chief Executive Officer.

Welcome to all of our shareholders. Welcome also to those attending the meeting online. We are streaming live today on the Microsoft Investor Relations website. Thank you for being with us today. We greatly appreciate your interest in the company. Let me now introduce Mike Williams and Jeff Schaberg, representing Deloitte & Touche LLP, our independent public auditor. Our Board members in attendance are: Dr. Maria Klawe, member of the antitrust compliance and compensation committees; Charles Noski, chair of the audit committee; Dr. Helmut Panke, chair of the antitrust compliance committee, member of the compensation and audit committees; Steve Ballmer, Chief Executive Officer of the company; and Bill Gates, Chairman of the Board.

Before we proceed with the meeting, let me review a few housekeeping items. Please take time after the meeting to visit the product demonstrations on the other side of this room. We have several of our products on display, including Windows Phone and our Kinect gaming system. We also have representatives from our product support services team to answer product questions you may have. As in prior years, members of the Investor Relations team are around and will be available to answer your questions in the product fair area.

Please be sure 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. You can sign up for email delivery for proxy materials, as well as alerts and RSS feeds to have information including quarterly earnings announcements, pushed in realtime. The web address is If you parked 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, as soon as the business portion of the meeting is over, we will have some time for Q&A.

American Stock Transfer & 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 their computers at the reception table. The polls are now open and will close in about 30 minutes following Steve Ballmer's remarks.

Now I'm going to ask Brad Smith to report on the notice of the meeting and the proxies received.

Bradford L. Smith

Thank you, Peter. The notice of the meeting and a notice of Internet availability of proxy materials were mailed by American Stock Transfer & Trust Company, the company's transfer agent, beginning on October 3, 2011 to all shareholders of record as of September 2, 2011. And as a result, the meeting is being held pursuant to proper notice. Proxies representing more than 84% 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 S. Klein

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 sessions 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 its representative will be granted 3 minutes to introduce this proposal at the designated time.

We 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 by ballot or proxy.

The first item of business to come before the meeting is the election of directors. The following 9 people have been properly nominated by the Board: Steven A. Ballmer, Dina Dublon, William H. Gates III, Raymond V. Gilmartin, Reed Hastings, Dr. Maria Klawe, David F. Marquardt, Charles H. Noski, Dr. Helmut Panke. The Board recommends a vote for each of the directors on the ballot.

The second item of business before the meeting is an advisory vote of the following resolution regarding executive compensation, the say-on-pay resolution. The Secretary will read the resolution.

Bradford L. Smith

Resolve 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 S. Klein

The Board recommends approval of the proposal. The third item of business to come before the meeting is an advisory vote on the frequency of future advisory votes on executive compensation. This proposal is discussed in the company's proxy statement, and the Board recommends a vote to conduct future advisory votes on executive compensation every year.

The fourth item of business to come before the meeting is ratification of the company's independent auditor, Deloitte and Touche LLP, for fiscal year 2012. 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 Shareholder Proposal #1. The Shareholder Proposal and its supporting statements are set forth in the company's proxy statement. The Secretary will read the resolution.

Bradford L. Smith

Be it resolved to amend Article 2 of the corporate bylaws to add a new Section 2.13 as follows: establish a Board committee on environmental sustainability. The purpose of the committee is to review the company's corporate policies above and beyond matters of legal compliance in order to assess and make recommendations to enhance the company's policy responses to changing conditions and knowledge of the natural environment, including but not limited to natural resource limitations, energy use, waste disposal and climate change.

Peter S. Klein

The proposal has been submitted by Harrington Investments. The chair recognizes John Harrington for a period of 3 minutes.

John Harrington

Thank you, Mr. Chairman, fellow shareholders. My name is John Harrington, Harrington Investments from the Napa Valley, California. And I wanted to first to apologize that I have to leave early to catch a plane back to the beautiful Napa Valley, but I also wanted to say that this is to praise Caesar, not to bury him, in many ways.

First, I wanted to congratulate Microsoft for requiring hardware suppliers of Microsoft to comply with social and environmental criteria, which we published in Microsoft's annual Citizenship Report. Second, I want to say how important it is that Microsoft, in its governance and nominating charter, calls for the committee to "annually review the company's policies and programs that relate to corporate citizenship, including environmental sustainability."

However, I believe that this is only the first step. I introduce this resolution because shareholders, the owners and principals of this company, need to know that our agents, our Board of Directors, a few of them are sitting here in front of me, recognize that they have a fiduciary responsibility and a moral obligation to include environmental sustainability criteria into every policy decision. Other companies have put stronger language in their charters and issued legal opinions clearly stating an environmental sustainability as the Board's fiduciary duty, including Intel and Monsanto. Monsanto, would you believe?

For example, Cisco Corporation's sustainability committee is explicitly charged with reviewing management's risk assessment and risk management policies and procedures with respect to suitability impacts considerations -- and considerations.

HSBC's corporate sustainability committee has the responsibility of reviewing and advising the Board on the company's sustainability reporting and sustainability targets. While Ford's sustainability committee charter clearly states that the, "principal functions of the committee include assisting management in the formulation and implementation of policies, principles and practices to foster sustainable growth of the company." The committee is also required to assist management in setting strategy, establishing goals and integrating sustainability into daily business activities throughout the company and review new and innovative technologies that could help the company foster sustainable growth.

Other smaller companies such as FAR-TECH, a plastic sheet manufacturer, last year created a sustainability committee to develop and measure corporate sustainability standards relative to employees and communities in which the company serves and operates.

In closing, environmental sustainability is an individual director's fiduciary duty and actually a moral obligation, not just the company and employees' responsibility. You actually have a very big job ahead, but I know you're up to it. Thank you very much.

Peter S. Klein

Thank you, Mr. Harrington. 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. The polls will remain open approximately 20 more minutes until the end of Mr. Ballmer's remarks.

Before I introduce our next speaker, let me remind you that we may make forward-looking statements during this meeting. Actual results may differ from these statements. You should refer to our SEC filings for the risk factors related to our business.

At this time, I would like to introduce Steve Ballmer, Microsoft's Chief Executive Officer.

Steven A. Ballmer

Well thanks very much for coming today, and thanks very much for investing in Microsoft. I'm certainly very pleased to be here with you this morning. Today's meeting is an opportunity to reflect on what we've accomplished in the past year and more importantly, to share our thoughts on the opportunities ahead.

Microsoft believes that technology creates opportunities for people and for organizations to achieve their dreams. That core belief motivates us every day to create exciting products that people can and do and will love.

Last year we delivered record financial performance by growing revenue 12% to nearly $70 billion. And thanks to continued discipline and focus on managing costs and expenses, operating income grew at an even higher rate of 13% to over $27 billion. Importantly, we grew our top and bottom lines while continuing to invest in key areas for future growth like the cloud, mobile devices and search.

Last year we returned almost $17 billion to shareholders through stock buybacks and dividends, and we recently announced a dividend increase of 25%. Fiscal year 2012 is off to a strong start with double-digit earnings per share growth for the first quarter and strong momentum broadly, particularly at our Server & Tools Business and our Microsoft Business Division.

It's an exciting time for this company and for our overall industry. Technology continues to evolve rapidly, and we will see more change and more innovation in the next few years than we've seen perhaps even in the past decade. Microsoft is well positioned to embrace and drive those changes and expand our business in remarkable new ways. We have a massive base of over 1 billion customers all over the world. We have the largest group or ecosystem of partners in the technology industry.

We have some 92,000 employees who are smart and passionate about changing the world. In fact, Microsoft was named as the #1 global workplace by the Great Places to Work Institute just here over the course of the last month. And we have amazing products and services that will continue to improve, and you'll continue to see us add new products to the mix.

That's where I spend the bulk of my time today. I want to spend it giving you our perspective on how we're delivering and how we're focusing on breaking through across all of our various products and business areas.

To start, Windows 7 and Office 2010 continue to sell at record, record rates. So far, we have licensed more than 450 million new Windows 7 PCs and 100 million new Office licenses in just the 2 years since those products were launched. I wish I could tell you there was no piracy in addition to that, but there has been quite a bit. So those products are really quite, quite popular. Both Windows 7 and Office 2010 are the fastest selling versions in their respective product category of anything we've done in our history. The performance of Office has been outstanding, and we're continuing to push with new innovations.

In June, we launched Office 365 which is a service that brings, if you will, Office to the Internet cloud. It offers collaboration for businesses of all sizes, from the smallest neighborhood store to the largest global enterprise. Office 365 builds on the enterprise cloud foundation we've been developing and building for more than 5 years, and it's used by some of the best-known companies on the planet: DuPont, Hyatt Hotels, Volvo, Starbucks here locally, absolutely fantastic. Additionally, it provides today millions of small businesses the opportunity to have enterprise-class capabilities like Microsoft Exchange and SharePoint and Lync, which they never would have had prior to the launch of the Office 365 service.

We're seeing businesses move to the cloud at an accelerating rate. They're taking existing applications and making them cloud ready. They're developing new applications and inventing new ways of doing business. And our cloud strategy makes it possible for customers to do all of these things at the pace in which they're comfortable having things in the Internet cloud in addition to their own private servers and data centers.

With Windows Server and Windows Azure, we allow businesses to connect their existing and new investments across those public and private clouds with a common set of tools. Major corporations like Boeing, Toyota, 3M, have chosen Microsoft for the cloud because we give them those benefits of the cloud but on their own terms. That's something today that our competition can't do. We'll continue to develop unique solutions to give more flexibility and power to businesses.

We recently previewed the next version of Windows Server, Windows Server version 8, which will be cloud optimized to support new so-called private cloud and hybrid cloud scenarios in addition to the public cloud scenarios about which you can read so much.

Early response to Windows Server 8 has been incredibly enthusiastic. In fact of all the things we had a chance to talk about when we sort of first previewed Windows Server, it was this enthusiastic response to Windows Server 8 that I would say was perhaps more unexpected than anything else. But Computerworld, for example, said "Windows Server 8 takes your breath away." These IT innovations that don't necessarily impact all of us in our personal lives, but they found -- they form a foundation upon which our company does an incredibly important business. The strength of that server offering has enabled our Server & Tools Business to grow from literally nothing in the early 1990s to a $17 billion business this past year. And it's fueled double-digit growth for the past 6 quarters in that business.

This year also marks the 10-year anniversary of us entering the business applications market with Microsoft Dynamics. We're starting this next decade with a great first quarter, where we saw our Dynamics business grow 17%. That growth is a result of our focus on simple and agile ERP solutions that complement the investments that companies might have in existing infrastructure. And it blends with the great traction we have with Microsoft Dynamics CRM that we launched in the cloud in January of 2011.

Clearly, we see businesses looking to Microsoft to help them boost their productivity, their security and their efficiency. But we also see consumers looking to Microsoft to help them get stuff done and enjoy time with their family and friends. We're happy and excited, in fact, to deliver the devices and experience that help with the enjoyment side of life as well.

Xbox is becoming a real entertainment hub for the living room. It started also a decade ago with blockbuster video games like Halo, but now it's so much more. I've actually seen this play out in my own family. For years, my wife and the mother of our 3 sons banished the Xbox to our basement. It was kind of labeled as a distracter for our kids and something that she just didn't want to have much to do with. Of course, they are very enthusiastic videogamers.

Last year we released Kinect for Xbox 360, and all of a sudden everything has changed. The Kinect has brought the Xbox into the mainstream of family entertainment. It changes the way people interact not only with games, but with TV, with movies, with music. Now we can simply speak or move, and the Xbox recognizes what we're trying to do. No buttons, no remotes to fuss with. So if you're playing a video game and want your on-screen character to jump, you jump. If you want to see your music collection, just wave your hand and it'll scroll by. If you want to pause a movie, simply say "Xbox, pause." My wife actually saw how Kinect and Xbox could bring our family together in new ways. And I'm very pleased to report that not only do we now have the Xbox upstairs, but I was instructed to bring new games home for grandma and grandpa for Thanksgiving this year.

My family story is really not unique. Millions of people have experienced the magic of Kinect. In fact, Kinect was named the fastest selling consumer electronics device in history by the Guinness Book of World Records earlier this year. There was a time people thought we were crazy for getting into the Xbox business, the games business and that we could never compete with Sony or Nintendo. Now Xbox is the #1 entertainment console in the United States, and we have clear line of sight to be the #1 in the world.

And with Xbox, things are still early days. The amount of innovation is amazing. The past was strictly about video games, but the future really is about all forms of entertainment: music, movies, sports, television and games. And Xbox makes discovering all the content easy with voice search that integrates Bing, Kinect, Xbox. So simply say a movie, TV show, song, game and Xbox will find it. We thought we'd show you just a little bit of a video of some of the things you can do this Christmas.


Steven A. Ballmer

Xbox is really an example of a couple different things. First, our willingness to make big bets that will play out over several years and ultimately create significant revenue. Last year, our Entertainment & Devices Division grew revenue 45% to almost $9 billion. Second, Xbox is an example of how our breadth as a company is a real strength, how different parts of Microsoft are working together to create interesting new scenarios that people love. The video showed how Xbox, Kinect, Bing, Office has worked with voice recognition as well as Windows Phone are all combining to create amazing new entertainment experiences.

While we're certainly focused on building extraordinary technology like Kinect, we're also forging new partnerships and making bold acquisitions to break through. We did both in the last year. With Bing, we've invested heavily in partnerships with Yahoo!, with Facebook and with Twitter. Bing's share continues to grow and with Yahoo!, we now power roughly 30% of the U.S. search query market. We're making progress in key fundamental areas and have more than met the baseline for relevance and performance versus the market leader. Bing takes a different approach, one where we're trying to help people accomplish tasks like booking a vacation or finding a place to eat or selecting a movie to watch from a phone, from a PC, from your TV.

We know that typically the most valuable piece of information for people to see when making a decision is what their friends think. So through our partnership with Facebook, we're able to tell you what your friends like right in your search results so that you can make a decision essentially with their input. Let's say you're considering a particular restaurant, it's pretty valuable to see that one of your friends liked it.

Our work on Bing is deepening our understanding of all the world's people and knowledge, and it is strengthening our ability to bring them together to help individuals to learn and get things done. We're clearly on the right path with Bing; a path to profitability, a path to radically change the way people use their PCs, their TVs and their phone.

We also think we're on the right path with Windows Phone. This time last year, we had literally just released Windows Phone to the world. Just last week, the next version hit stores around the globe. There are a number of new phones coming to market or that have come to market from Samsung, from HTC, from Nokia and many others with over 500 new features in the release that we just brought to market. Windows Phones are sleek. They're stylish. They put people, your friends, your life, your information right at the center.

Our survey showed that people who use Windows Phone love it. They just enjoy how it bubbles up that information that's most important to them. They will say in their own words it's a much more delightful experience than navigating a sea of applications the way you do with other smartphones. Gizmodo, one of the most important blog sites in our business, says "It's striking how much more connected to people Windows Phone now feels than any other phone, including Android."

This year we also landed a significant partnership with Nokia aimed at building a new mobile ecosystem that will drive scale and pave the way for choice and opportunity for the consumer, for mobile operators and for software developers. Nokia's focus is squarely and exclusively on our Windows Phone. They launched their first Windows Phone in Europe, and we'll see devices here in the United States early next year.

We're working with them on mobile technology design, development and marketing initiatives that will bring Windows Phones to a much wider range of market segments and geographies and across a much broader range of price points. Today, there are 200 million Nokia devices in the hands of customers around the world. That's about 30% of the global smart phone market is Nokia, and we're extremely enthusiastic and optimistic about the growth ahead for Windows Phone through our partnership with Nokia and other approaches.

In addition to bold partnerships, we recently closed the acquisition of Skype. We're now focused on making Skype even better and on making other Microsoft products even better because of and with Skype. Together, we think there's a chance to really redefine communication.

We'll deliver what our consumer and business customers really want: the ability to have one-to-one discussions or group meetings using a broad spectrum of devices across the enterprise and the home, the company and its partners and customers. We'll deliver those capabilities in ways that let people chat, voice, video conference and ensure they can move between all of these things easily and naturally.

In many ways, one of the most important things we are working on right now is the next version of Microsoft Windows, Windows 8. We released the developer preview of Windows 8 in September, and it's been incredibly gratifying to see the response from the developer community and beyond. We've re-imagined Windows from the chip set all the way through to the user experience. Windows 8 will power a broader range of devices, from tablet computers to desktops. It has a fast and fluid touch-first user interface, but also will work great with a mouse and a keyboard.

We're seeing to it that no one has to compromise on the experience they want. That means if you want to use the familiar desktop view with a mouse and a keyboard, you can and it will work beautifully. And if you want the tablet and touch experience, you can have that as well. With Windows 8, we're creating new opportunities for developers to build apps that take advantage of the whole PC. Already, millions of developers around the world have downloaded our preview version and tools, and they have those in their hands and are starting to build new Windows 8 Metro style applications. Those applications will be discoverable and monetized through the new Windows store that will ship at the time of Windows 8. We've truly re-imagined Windows and Windows 8, and we can't wait for the opportunity to share more with you over the coming months.

There's never been a time, never been a time since I've been at Microsoft, that's quite as exciting as things are now. The number of big technology shifts that are going around -- on, hardware, natural user interface, the cloud are as momentous as anything I've seen. I see areas where we have strong established business and huge opportunity for growth, and I also see areas where we've made fundamental investments and now have the opportunity to start building market position, share and to grow revenue and grow profit.

We've got a lot of things we need to continue to work on and improve, and yet I'm extremely optimistic about our future, about the things that we get a chance to do and the growth that we'll have an opportunity to drive. Your support and investment figuratively and literally is super, super important. We appreciate it. I thank you, and we'll work hard to make that the best investment you've ever made. Thank you very much.

Peter S. Klein

Thank you. 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 #1 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.

Bradford L. Smith

The following 9 persons have received a majority of votes cast, each with votes in excess of 92% of the votes cast: Steven A. Ballmer, Dina Dublon, William H. Gates III, Raymond V. Gilmartin, Reed Hastings, Dr. Maria Klawe, David F. Marquardt, Charles H. Noski, Dr. Helmut Panke. The 9 nominees are elected directors to serve until the next annual shareholder meeting and until their successors are elected and qualified.

Peter S. Klein

Proposal #2 is the advisory vote on executive compensation.

Bradford L. Smith

The proposal has received affirmative votes representing more than 98% of the votes cast.

Peter S. Klein

Thanks, Brad. The proposal is approved. For the proposal on the advisory vote on the frequency of future advisory votes on executive compensation, shareholders had a choice of 1, 2, or 3 years. Brad, please report the vote.

Bradford L. Smith

With respect to the advisory vote on the frequency of future say-on-pay votes, the option of 1 year has received more than 83% of the votes cast. The company will announce its decision on the frequency of future say-on-pay votes in a Form 8-K filed with the Securities and Exchange Commission within 150 days of this meeting.

Peter S. Klein

Thanks, Brad. Proposal #4 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.

Bradford L. Smith

The proposal has received affirmative votes representing more than 98% of the votes cast.

Peter S. Klein

Thanks. The proposal is approved. The next item is Shareholder Proposal #1. The proposal requires the affirmative vote of the majority of the shares voting on this matter. Brad, please report the vote.

Bradford L. Smith

The shareholder proposal received less than 4% of the votes cast.

Peter S. Klein

Thank you, Brad. Shareholder proposal #1 is not approved.

We expect to post details of final voting results on these matters on our Investor Relations website by tomorrow and will also report the results in a Form 8-K filed with the Securities and Exchange Commission within 4 business days.

We have completed the business of the meeting and our shareholder meeting is now adjourned. 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.

Question-and-Answer Session

Bill Koefoed

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 so we can take as many as possible.

We also solicited questions via email and our Investor Relations website so that those who could not attend in person can ask questions. We will be addressing several of the questions submitted electronically, alternating with live questions. Do we have a first question?

Unknown Speaker

Shareholders own the company. Why don't you treat us as owners? When our company makes money, why don't you give it to us? We don't need you to buy stock for us. We can do that ourselves.

Peter S. Klein

Certainly over time, we've had a very consistent and balanced approach to capital allocations. Over the last 10 years, we've distributed over $170 billion back to shareholders. As Steve noted, we've increased our dividend 25% this past year and cumulatively over the last 2 years, over 50%. I would say over the long term, in order to drive the most shareholder value, our approach is to balance distributing cash to shareholders, investing in long-term growth for the company and also having a very strong balance sheet to drive long-term strength of the company. I think we've had a very balanced and consistent and thoughtful approach over the real lifetime of the company.

Bill Koefoed

We've got a question from the web. Should you split up the company to unlock shareholder value, you could sell minority interests such as EMC did with VMware.

Steven A. Ballmer

Well, let me maybe opine on that. The company doesn't kind of invest in things which are idly independent of all the rest of the activities that we do, and the amount of technology synergy and/or business synergy across our activities is really very high. As you saw it even in the video that we showed today, the ways in which we might want to use our Bing technology to power our phones, our PCs and our TVs is an example. We use the same graphics technology, whether you're designing a new car as an engineer at Ford or Toyota or whether you're playing on an Xbox. That's a shared bit of technology. We're in a world in which people talk about the consumerization of IT, which really means this notion says that what you use at home, you want to use at work and that's certainly the case. And so drawing some kind of arbitrary set of boundaries is quite hard, and yet we take the advantage and the approach that says we want to be focused within this footprint that we have. And so you'll see us occasionally move to reduce the number of activities and occasionally move to expand the number of activities in which we're engaged, but there's nothing that I see as creating fundamental value in splitting the company up. And certainly having minority investments the way EMC and VMware does, my assertion would be it makes it a lot harder to manage any of the real synergies that exist from a technology or business perspective if you try to have different shareholding groups own essentially different parts of the company.

Bill Koefoed

Let's go to a question back at paddle #2.

Unknown Speaker

Yes, thank you. I also want to repeat what the fellow -- the gentleman said about the sharing of the profits with the shareholders, because the company is sitting on something like $50 billion plus -- $50 billion, and I think they should share it with us. Also, I think one hour is not enough time for a public meeting with all the shareholders. I'd like to see it increased to maybe an 1 hour 15 to 1.5 hours, because I think I and others have many questions. The other thing is I want to urge people to read the Paul Allen book about Microsoft. He is a really, really brilliant person as is his cofounder friend, Mr. Bill Gates, to whom I would like to address my question. Mr. Gates, being a founder, I would like to know what you think about -- your thoughts about how we might see an increase come about in the price of Microsoft's stock, which is still not doing so well even though it was up from last year.

William Henry Gates

Well, thank you. I think the key thing is the profit stream that the company is able to generate rather than the choices about whether those profits are paid out as dividend or buyback or retained. There's certain constraints. You want to retain enough so that the company has the strength to be able to take big risks even the face -- in the face of some economic uncertainty. So I've always been a big believer in having a very strong balance sheet for the company. It's been interesting. Traditionally, technology companies did not do that. But I'd say over the last 5 years, the Microsoft approach on that has become more typical, some having balance sheets, in some numeric respects, with even more cash on them than we have. So I think in terms of value creation, if you pay out a dividend, the value of the stock will adjust downward because the cash is no longer in the company. You buy back the stock, the stock will go up somewhat, but it's pretty much in proportion to the cash reduction there. So I think the big thing is the new products and the volumes of those products, and I certainly think the opportunity as the world's best software company is very strong, stronger today than it's ever been. Obviously, we have a lot of upside in the phone and tablet business. We've got a lot of smart people working on those things. In the Office business, we have to keep renewing our excellence and kind of surprising people with neat new things that are going on. And certainly, Steve and his full-time team are good about getting my input on those things, including some specific projects that I'm more involved in.

Bill Koefoed

All right. Let's take another question from paddle #2.

Larry Dohrs

Great. My name is Larry Dohrs from Newground Social Investment in Seattle. Microsoft enjoys higher revenues per capita in countries with greater freedom of expression. Therefore, Microsoft has a clear business interest in promoting freedom of expression. In that context, please describe the censorship that Microsoft practices in China, the legal basis on which that censorship is based and Microsoft's long-term plan to promote free expression and thereby develop its business in that very important market.

Bradford L. Smith

Sure. I'll address that. We at Microsoft really seek to focus on the issues you described by working with others in our industry and with a broad group of stakeholders through an initiative that we started to create a few years ago. It's called the Global Network Initiative or GNI. GNI includes not only Microsoft, but it includes companies like Yahoo! and Google and a wide variety of human rights organizations. And in effect, GNI is based on a recognition of 2 principles or facts of life. The first is that a company does have to obey the law wherever it does business, regardless of whether it happens to agree with a particular law or not. That includes laws that relate to freedom of expression. But second, the world is a better place if we can promote some broad international or really universal norms that, in fact, encourage broad expression as well as protection for people's privacy and their interests in their own personal data. So there are a variety of countries in which we work where there are restrictions on freedom of expression. China is one, but there's many others as well. And in those countries we do obey the law, but we also engage in a dialogue with the governments there. And we also seek to put in place a variety of safeguards that will ensure that we don't censor beyond the degree required by law that even so will require the proper application of legal process that will assert the full rights that we have available to us and that will help encourage an environment that will promote the circulation of more information. In fact, if you look at what our products and services do in every country in the world, I think you're looking at a suite of services and products that have done a tremendous amount to make information more widely available and to enable people to express their views more widely than has probably ever been the case before. And so it's with that combination of short- and long-term perspectives that we'll continue to work with others and stay focused on these GNI principles.

Bill Koefoed

Okay. Let's take another one from the web.

Are we in the post-PC world? What are your expectations for the PC market going forward?

Steven A. Ballmer

Well, one thing I know is we're certainly not -- we are in the Windows era. We were, we are and we always will be. That's kind of what we get paid to do. We've got broad Windows initiatives driving Windows down to the phone. With Windows 8, you'll see incredible new form factors powered by Windows from tablets, small, large, pens, smaller, bigger, room-sized display. We are in an era in which the range of smart devices is continuing to expand. That's a fantastic thing for Microsoft. That is a real opportunity. That is an opportunity that we will pursue by leveraging and sharing and driving Windows in new ways. The "applications" of the past on the PC will continue to be there and evolve, but it's been one of the remarkable things about Windows and the PC over the years is it has adapted. The PC was a programming machine, and then it became a spreadsheet machine and a word processing machine and an email machine and a music machine and an Internet machine. And, through the power of Windows, it'll be a tablet machine and a reading machine and a note-taking machine. So we're very much -- continue to be in a Windows era, and we have to push -- with great innovation and with great agility, we're going to have to push Windows into more and more form factors. And we've got a lot of great competition who will push other solutions but at the end of the day, we see great opportunity to -- for the next decade to be a decade of great growth and a continuation of the Windows era.

Bill Koefoed

Okay. Let's go to paddle #1.

Unknown Speaker

My name is Klaus Mine [ph]. I'm practically a neighbor of Microsoft within walking distance. My question addresses the much talked about tax holiday of bringing in overseas earnings, and I would like to hear your thoughts about it.

Peter S. Klein

Yes, that's a great question. Thank you. We certainly are supportive of long-term corporate tax policy reform. We've been public about that. Many of our peers in our industry are as well. A tax holiday of overseas cash is sort of a short-term step on the way to that. We're very focused with policymakers on what a competitive long-term corporate tax policy will be. I think in the short term, a tax holiday is probably beneficial, but it's certainly not the long-term goal or the end goal. It's sort of one small step on the way there, and we'll see how that plays out politically.

Steven A. Ballmer

Yes. Corporate taxes in the U.S. do not -- are not -- they don't look competitive to corporate taxes elsewhere, and today's tax policy actually gives incentives to companies, essential U.S. companies to invest outside the U.S. And that's why there's a need for a broader set of reform but certainly, a tax repatriation, as Peter said, would be a good thing.

Bill Koefoed

We'll take a question from paddle 2.

Unknown Speaker

Good morning my name is Pascal Stolz. I have a question for you in that you're holding a tablet, Steve. How come we can't buy one today? And why should I have to go buy an Apple, a Fire or Barnes & Noble?

Steven A. Ballmer

You can buy this today at the Samsung website, Microsoft store. I encourage you to stop by over here at Bellevue Square, Samsung. I happen to be running the Windows 8 developer preview, but it runs Windows 7. In fact right now I'm running the OneNote application on the Windows desktop, but I can always get back to any Windows 8 application. But they're available today, and I encourage you to stop by our store over at Bellevue Square in U Village here Seattle and buy one.

Bill Koefoed

Okay, we have time for one more question. Let's go to paddle 4.

Unknown Speaker

I realize it's a favorable interest environment, at least for borrowers. But with so much cash on hand, more than you need for operating capital and other liquid assets available, I ask why does Microsoft continue to issue debt?

Peter S. Klein

Well, we're not issuing debt right now. We have issued debt, and I would say there are 2 things. One, just opportunistically, given the interest rate environment, it was a good time to opportunistically put some debt on the balance sheet. And secondly, related to the question about offshore cash, it was helpful in generating some onshore domestic cash for uses including stock buybacks and dividends.

Bill Koefoed

Okay. So that concludes our Q&A session. Ladies and gentlemen, thank you very much for attending and for your continued interest and support in Microsoft.

Unknown Speaker


Bill Koefoed

We've got the meeting scheduled for this amount of time, sir. So thank you very much. Have a good day. Thank you.

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