Microsoft Corporation (NASDAQ:MSFT) 2018 Annual Shareholders Meeting Conference Call November 28, 2018 11:00 AM ET
John Thompson - Chairman
Satya Nadella - Chief Executive Officer
Amy Hood - Executive Vice President and Chief Financial Officer
Carolyn Frantz - Deputy General Counsel and Corporate Secretary
Brand Smith - Legal and Corporate Affairs
Solomon Romney - Xbox Adaptive Controller Spokesperson
Jessica Rafuse - Senior Program Manager, Accessibility, Corporate External Legal Affairs
Sohana Punithakumar - Sr. Product Marketing Manager at Microsoft Mixed Reality
Mike Spencer - Head of Investor Relations
Ken Copley - Capital Executives
Today’s presentation may contain forward-looking statements, which are predictions, projections or other statements about future events based on current expectations and assumptions. Actual results may differ materially from these forward-looking statements, because of a variety of risks and uncertainties about our business, which are discussed today or described in our filings with the Securities and Exchange Commission, including our Form 10-K and 10-Q. We do not undertake any duty to update any forward-looking statements.
Please welcome to the stage Microsoft Chairman, John Thompson.
Good morning and welcome. I’m John Thompson, Chairman of the Board at Microsoft. For those of you who are here with us at the Meydenbauer center in Bellevue, as well as those of you viewing online, we welcome all of you to our Annual Shareholder Meeting. We’re streaming live from our Investor Relations Web site. We strive to make the meeting as inclusive as possible by offering our shareholders the opportunity to participate and vote via the virtual shareholder meeting.
I’d like to share with you the presenters of today’s meeting. I will be joined by Satya Nadella, our Chief Executive Officer; Amy Hood, our Executive Vice President and Chief Financial Officer; Carolyn Frantz, our Deputy General Counsel and Corporate Secretary. And Carolyn will address the business portion of the meeting, followed by Amy, who will review Microsoft's financial results, and finally, Satya will reflect on our progress over the past year and our opportunities that lie ahead.
Following his remarks, we'll than show you some exciting innovations happening throughout Microsoft, especially in the areas of accessibility and then we'll have an opportunity for Q&A. But first, let's attain to the few formalities that are important for this meeting.
Broadridge Financial has been appointed the Inspector of Elections for the meeting. The inspectors are located at the reception table in the lobby, most of you have already voted your proxy or your proxy votes have already 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, ballots are available from the inspectors at the reception table in the lobby. Filing a ballot and giving it to the inspector will revoke your earlier proxy statement.
If you're a beneficial shareholder with a voting instruction form, you also may submit those forms and use the computers at the reception table to cast a new vote. The polls are now open and will close in a few moments after the presentation of our business matters here today.
As Satya said in his letter to you, we are proud of the accomplishments and the innovation that has occurred, and the customer health that we have navigated through in this transformation. We are even more optimistic about the opportunities ahead. I want to thank all of you for your continued investment in Microsoft, as well as the excitement that you have about the Company and our stock performance over the last year or so.
We believe these results stems from Microsoft's commitment to business strategies that provide growth long-term sustainable growth for our Company. The Board works to ensure that Microsoft’s continuing success and represents shareholder interest. Together, we rely on our diversity of experience, perspectives and skills to provide guidance and oversight to how Microsoft effectively manages risk and realizes strategic opportunities in a dynamically transforming world. To better understand the Board's unique skills and perspective, I encourage all of you to view our Director video series. This series can be viewed on our corporate governance Web site.
Now, I'd like to introduce the nominees for the Board of Directors, who are here with us today:
First of all our Co-Founder, Bill Gates; next, Reid Hoffman, our Technical Adviser to the CEO;
Hugh Johnston, is our member of our Audit Committee; Teri List-Stoll, is a member of our Audit Committee and the Governance and Nominating Committee; Chuck Noski, is the chair of our Audit Committee and the member of the Governance and Nominating Committee; Dr. Helmut Panke, is chair of the Regulatory and Public Policy Committee and a member of the Audit Committee, Sandy Peterson is a member of the Compensation Committee and the Public Policy Committee; Penny Pritzker, is a member of the Regulatory and Public Policy Committee; Charlie Scharf, is a member of the Compensation Committee and Governance and Nominating Committee; Arne Sorenson, is a member of the Audit Committee; John Stanton, Chair of our Compensation Committee, and a member of the Regulatory and Public Policy Committee; and finally, Padma Warrior, is a member of the Compensation Committee. Also here with us today is Steve Sinwell, representing Deloitte & Touche, our independent auditors.
And now, I'd like to call the annual meeting for 2018 to order. I'll be serving as chair of the meeting and Carolyn Frantz will serve as secretary. As chair of the meeting, I've adopted an agenda that will be governed, or will govern the business of today and the rules of conduct for the meeting. Copies of the agenda and rules are available at the reception table outside the meeting room. The rules of conduct also govern the Q&A session.
Carolyn will join us to report on the notice of the meeting, the proxies received, and present the matters to be voted on. Carolyn, please.
Thank you, John. Welcome, everyone. This morning, I'll walk us through the short formal meeting. And then, as John said, you'll hear from Amy and Satya followed by a Q&A session.
The notice of the meeting and Internet availability of the proxy materials were mailed by Broadridge Corporation beginning October 16, 2018, and it went to all shareholders of record as of September 26, 2018. As a result, the meeting is being held pursuant to proper notice. We have received proxies representing more than 87.5% of the roughly 7.7 billion shares of the Company's stock that are eligible to vote. This means we have a quorum present and the meeting is duly constituted and will proceed.
This morning, we have three management proposals for you to consider. They were all described in the proxy statement for today's meeting. The first item is the election of directors. The following 14 people have been properly nominated by the board; William Gates the 3rd, Reid Hoffman, Hugh Johnston, Teri List-Stoll, Satya Nadella, Charles Noski, Dr. Helmut Panke, Sandra Peterson, Penny Pritzker, Charles Scharf, Arne Sorenson, John Stanton, John Thompson, and Padma Warrior. The Board recommends a vote for each of them.
The second item is an advisory vote to approve executive compensation as disclosed in the Company's proxy statement. The Board recommends a vote for this proposal.
Last, the third item, we ask that you ratify selection of the company's independent auditor, Deloitte & Touche, for fiscal year 2019. The Board recommends for that proposal.
The discussion of the matters for shareholder consideration is now closed and the polls are now also closed.
Now, I'll share with you the preliminary voting tabulations. First, all 14 nominees on the ballot to become director are elected with over 95% of votes cast. They'll serve until the next annual shareholders meeting and until their successors are elected and qualified. Proposal 2, the advisory vote on executive compensation has been approved with by more than over 95% of votes cast. Proposal 3, ratification of the Company's auditor, Deloitte & Touche, has also been approved by over 95% of votes cast. We expect to post the detail for the final voting results and all these matters on our Investor Relations Web site later today. We'll also report the results in a Form 8-K that will be filed with the Securities and Exchange Commission within four business days.
With that, we've completed the formal portion of the meeting and the meeting is now adjourned. Let me hand the stage over to our Chief Financial Officer, Amy Hood.
Thanks, Carolyn. Hello everyone, and thank you for being here today, or watching online. 2018 was a record year for Microsoft. Revenue grew over 14% to $110 billion. Operating income grew 20% and EPS grew 18%, as we continue to execute well across priorities like commercial clouds and gaming. The year began with the most significant sales and marketing reorganization in the Company's history. We had an industry and technical expertise to partner more deeply with our customers on their digital transformations. We also reorganized our engineering teams to align with emerging technology trends to better serve the needs of our customers today and long into the future.
To further enhance our capabilities and increase future growth, we completed nine acquisitions in addition to GitHub, the largest platform for the developer community. We acquired Avere, a leading provider of high-performance storage for cloud, hybrid and on-premises environments, giving customers from all industries the flexibility to process and store data wherever necessary for large-scale compute workloads.
In gaming, we purchased PlayFab, a complete back end platform for mobile, PC and console game developers, to build, scale and launch cloud-connected games. And we’ve announced the addition of seven new studios since the beginning of fiscal '18 to bolster our first-party content and fast-growing gaming services. As we continued to invest in M&A and our own organic growth, we retained our commitment to capital return, which include a total cash return of $21.5 billion. In September, we announced the 9.5% increase in our quarterly dividends and we're continuing to execute against our current $40 billion buyback authorization.
Now, let me share a few highlights from the last fiscal year. Our commercial cloud business grew 56% to surpass more than $23 billion in revenue, exceeding the ambitious goal we've set to achieve $20 billion in annualized commercial cloud revenue by the end of fiscal 2018. We saw strong growth across each of our services; Office 365 grew 41%, Azure grew 95% and Dynamics 365 grew 65% as customers continue to choose the Microsoft’s commercial cloud.
Importantly, we delivered on our commitment to make significant improvement in our commercial cloud gross margin percentage, which expanded to 57%, up 7 points year-over-year. Through the sustained effort of our engineering, sales and marketing teams, we drove gross margin improvements across each of our key services. And in the first full year post-acquisition, LinkedIn revenue exceeded $5 billion and we surpassed our original financial commitment to be accretive to EPS, excluding the impact of purchase accounting.
Platform improvements across mobile, video and messaging grew record levels of engagement and we delivered key product integrations, such as the LinkedIn profile card in Outlook and the resume assistant, in Word. Our server products and cloud services business grew to $26 billion and grew 21% as we continue to address our customers' real-world hybrid needs. From a technology and licensing perspective, we’re truly delivering differentiated value and giving our customer the flexibility they need to transform at their own pace.
Now, let’s turn to progress across our Microsoft 365 offering. We continue to see healthy commercial and consumer demand for Windows 10, increasing our base of active Windows 10 devices and contributing to growth in our search business. Our office business saw double-digit revenue growth as we reached even more commercial and consumer users by helping people across all of our customer segments be more productive and collaborative. Surface also saw double-digit growth from continued innovation across a broad portfolio of devices. Our gaming revenue exceeded $10 billion and we surpassed 57 million Xbox Live monthly active users, as we invested across content, community and the cloud.
Now, a few comments on our current fiscal year. First, as we do at the start of each fiscal year, we updated our investor metrics, based in part on feedback from you. We have now included the commercial portion of LinkedIn in all of our commercial metrics to give investors a more complete view of our performance. In addition, we added a LinkedIn revenue growth metric so that investors can track our progress on this business on a quarterly basis. Second, we're off to a strong start in fiscal '19 with double digit revenue and operating income growth in Q1. This reflects our commitment to long-term strategic investments and consistent execution to deliver top and bottom-line growth.
For the full year, we expect operating margin expansion, even accounting for the total impact of the GitHub acquisition, that includes purchase accounting, integration, and transaction-related expenses. Looking forward, we believe that the highest shareholder value was created by investing in our future, and creating differentiated value scenarios for every organization person to achieve more. We have focused on the right secular trends, invested in expanding markets and we're confident that our ability to execute against our innovation road map positions us for continued growth as we remain deeply focused on our customer success.
With that, please join me in welcoming our Chief Executive Officer, Satya Nadella.
Thank you, Amy and good morning, everyone. And thank you for being here today, as well as all those watching online. And more importantly, thank you for your commitment to Microsoft as shareholders.
I'm proud of the progress we've made in the past fiscal year as we innovate and help our customers with their digital transformation journey. And I'm even more optimistic about our tremendous opportunity that lies ahead. We're living in a very crucial time in history where the impact of digital technology on every part of our daily lives and work and that every aspect of our society and economy is even more acute. It's therefore incumbent on us as industry leaders to ensure that the technology we build always creates more opportunity. Too often we celebrate technology disruption without reflecting on the unintended consequences. What the world needs is technology that benefits people and society more broadly and where trust is earned each day.
At Microsoft, we are guided by our mission to empower every person and every organization on the planet to achieve more. Our business model is fundamentally dependent on our customers and partner success. We create economic opportunity in every community, in every country, helping drive creativity in us all, small business productivity, large business competitiveness, public sector efficiency, we support new startups, we help improve educational and healthcare outcomes.
Our culture at Microsoft, which is at the core of everything we do, enables us to pursue this mission. Each day we push ourselves to be more customer-obsessed, be more diverse and inclusive internally and come together as one Microsoft to serve our customers and ultimately make a bigger difference.
Now everywhere I go, I see this mission and culture at work. Let me share just a few examples. Right here in the State of Washington. Gary Johnson, an 8 year old with dyslexia avoided reading in class until he started using learning tools in OneNote. And in Kenya, a startup M-KOPA Solar is using our cloud to connect hundreds of thousands of homes to the solar power for the first side and as a byproduct, even helping all those households develop a credit history.
In Poland, Met-App is using HoloLens to help cardiologists visualize the patient's heart as it beats reducing the time it takes to perform open heart surgery. And in large multinationals from Coca-Cola, to Shell, to Volkswagen, to Walmart are all using Azure and Microsoft 365 to build their own digital capability so that they can thrive in a world where every company, every business is a software company.
As Amy said, all this broad impact is fueling strong results. And yet, the opportunity ahead is unprecedented. Think of computing, going forward, not as being separate from the world but being deeply embedded in the world; every walk of life; every part of our economy and society is being digitized; every place whether it's the home, the office, the stadium, the factory, every industry; from manufacturing, to retail, to financial services to healthcare; and everything that we use from appliances to our cars, are all becoming digital. And that's the opportunity in front of us.
And now, I'll briefly discuss how we are creating these new experiences and enabling digital transformation for our customers. We're building Azure as the world's computer, innovating with new capabilities focused on both existing workloads like security and new workloads like IoT and Edge AI. We expanded our global data center footprint to 54 regions, more than any other cloud provider and with the most comprehensive compliance coverage in the industry.
Azure is the only hyper scale cloud with a consistent computing stack that extends from the data center to the edge where there's consistency and identity, data, application platform and security and management. All of this rich infrastructure will be used to build AI, which will be the defining technology of our time. We are leading in the field of AI research, achieving human parity with object recognition, speech recognition, machine reading, and just this year with language translation. But most importantly, we have focused on democratizing the AI breakthroughs to help organizations of all sizes gain their own competitive advantage because of AI.
Our acquisition of GitHub recognizes the increasingly vital role of developers and the role they'll play in value creation across our economy and in every industry. We're excited about the opportunity to bring our tools and services to new audiences, while enabling GitHub to grow and regain their developer-first ethos. We're infusing AI across Microsoft 365, Dynamics 365 and LinkedIn to help people and organizations be more productive and digitize mission critical business processes from sales, to marketing, to HR.
Microsoft 365 is already a multibillion dollar business that empowers everyone from large enterprises, to small businesses, to students and teachers and more than 2 billion first line workers. More than 155 million people use Office 365 commercial every day, every month; Outlook mobile is on more than 100 million iOS and Android devices worldwide; Microsoft Teams has become a hub for teamwork in more than 300,000 organizations of all sizes, including 87 of the Fortune 100. Windows 10 now has more than 700 million devices that are active and Microsoft 365 and Surface are inspiring device innovation as you’ll see from our incredible holiday lineup today.
With Dynamics 365, we are helping customers convert their traditional systems of record and engagement into intelligence. And with LinkedIn, we now have more than 575 million members. We are helping companies transform how they manage their talent, training, sales and marketing. And in gaming, we’re pursuing an expansive opportunity from the way the games are created and distributed to how they’re played and viewed. And we’re investing aggressively in the content, community and cloud services across every endpoint to expand the usage and deepen engagement with gamers, including the 57 million monthly Xbox Live users. Finally, we added seven new gaming studios to bolster the first-party content for fast growing gaming services like Game Pass subscription service as well as Mixer.
In closing, though, I want to really reflect on the optimism I have for the opportunity ahead. With this opportunity comes even the deep responsibility. It’s why we have focused on instilling trust in technology across everything we do. We believe privacy is a fundamental human right that’s why compliance is deeply embedded in all of our processes and practices. We are working to ensure that our enterprise class security innovation, not only helps our largest multinational customers, but also protect small businesses and individual consumers who are often the most vulnerable to cyber attacks.
And as we make advancements in AI, we are asking ourselves the tough questions, like not what can computers can do but what should they do. That’s why we are investing in tools to detect and address bias in AI systems and its advocating thoughtful government regulation as well. Finally, we are putting AI into the hands of change-makers across society’s pressing challenges, with initiatives like AI for humanitarian action, AI for earth and AI for accessibility. This is the opportunity and responsibility that grounds us in our mission. And I could not be more excited about what’s to come.
Now, let’s welcome the team to the stage to really show you a set of demos, and then we’ll move to the Q&A.
Unidentified Company Representative
Thanks Satya. This morning, we wanted to show you a few demos that help bring the Microsoft mission to life. We thought we’d start with gaming. Today, 4 billion people are connected to the Internet and over 2 billion play games online. As Satya, I mentioned over the next decade, we’re going to continue to create amazing content and games, invest in the cloud and build communities that allow anyone to participate. We have a mix of incredible games for people of all ages but we want to make it easier to discover new games and play them either on your Xbox or your PC.
Earlier this year, we introduced the Xbox Game Pass, a content subscription service for gaming. Just like with Spotify and Netflix have done for music and video, Xbox Game Pass will allow us to reach beyond the 2 billion people playing games today. With over a 100 games available for just $10 a month, we are truly excited to bring gaming to everyone. But we're also building a robust cloud platform so that anyone can play the games they want with the people they want at any time and place, and most importantly, on any device.
Earlier this year, we announced Project xCloud, our future streaming gaming platform with the goal of delivering a quality experience for all gamers on all devices. We're building a service that's consistent with the speed and high fidelity that gamers expect on their PCs and their consoles.
This morning, we want to show you an amazing example of a product born from a need and a passion. So, to help me with this, I'd like to invite on stage, Solomon Romney, who’s going to tell us more about the Xbox Adaptive Controller. Solomon?
Good morning. So I'm really excited to be here on behalf of Microsoft Stores to demo this controller. So the Xbox Adaptive Controller was designed for gamers with limited mobility. Now, limited mobility is a broad term that can mean many things, but for me, it means I have a partial hand. Now, you might think that this makes things difficult when it comes to playing games. And you would be correct, which is why we made a controller that is more usable for more people.
So, would you like to play some Forza Motorsport sport with me?
Unidentified Company Representative
Yes, sure, sure I will.
Great. Well, I'm going to use the Adaptive Controller and this is going to be you. So give me just a second here, and we will get you set up.
Unidentified Company Representative
Now, in the meantime I see that we have all these different buttons, triggers and configurations on this controller. But I only see two buttons on the Xbox Adaptive Controller.
That’s correct. So there are two big buttons built into the Adaptive Controller. But really what makes it the first of its kind, is if we take a look at the back here, we've got all of these different ports and everyone them is unique and matches up to the inputs on a standard controller. So simply, I take a peripheral, which in this case my little PDP one-handed controller here, I plug it in and the way we go.
So what I've figured got here is what I like to call my three-finger Forza setup. I'll have gas, brake, and steering right here on my one-handed lightweight controller. So when you are ready --
So up to this point, if someone needed to build a controller around their mobility, they had to hack apart our hardware, prototype, solder, assemble, build a whole new device, which took a ton of time and money. And with the Xbox Adaptive Controller, we simplified all that by creating a hub that is easy to use, affordable for all gamers, flexible to all setups and available through our Microsoft Stores.
Unidentified Company Representative
Now, you even made changes to the packaging? Didn’t you?
Absolutely. We wanted to make sure that from the controller, to the accessories app, to even the packaging that it was all as accessible as it possibly could. I have one here and we're going to open it up. So, just to show you how easy it is, this loop on the outside here and the box just really blossoms right open. And then I take this other loop right here and I grab that and that's it, there's our controller slides right out, easiest thing in the world.
We really see this as the beginning of a new era in inclusive design. And this was born out of a hackathon project during which we partner very closely with our gamers with disabilities community. There is a thing, has special meaning and the disability community, nothing about us without us, which for us meant, including gamers with disabilities during the entire development process. This was and remains a core tenant of our design process. Thank you.
Thank you so much Solomon. So this gives you just a glimpse into how we're creating amazing content and games with Xbox Game Pass, investing in the future of gaming with Project xCloud and designing products like the Xbox Adaptive Controller to help build communities that allow anyone to participate.
Now, I'd like to show you and talk to you all about Microsoft 365. As Satya said, this is already a multibillion dollar business for Microsoft and empowers everyone from the largest of enterprises to small businesses, and even teachers and students around the world. So I wanted to give you a sense for how I use Microsoft 365 every day.
I like to start with the app I use most for work, Outlook Mobile on my phone. If you have an iPhone or Android phone and you're not using Outlook Mobile, you're missing out on the best email experience available today, regardless of whether you're using it for hotmail, outlook.com, a Microsoft 365 Work account for even Gnome.
So outlook brings together your email, calendar, contacts and files to help you get stuff done even on the smallest of screens. As you can see here at the top, outlook intelligently separates my mail into two tabs, focus and other. These mails and the other tab aren't necessarily junk they're just less important than those in my focus inbox. Outlook is using AI, similar to what's most important to me, and prioritizes the email based on importance. We all use email differently. But for me, I send those precious moments I have between meetings prioritizing my email. And Outlook makes this incredibly easy.
You simply swipe to take an action on a message and outlook will lets you customize the action to match how you work. I have mine set up so I can archive this one of a simple swipe to the left or I can flag it to follow up later with a swipe to the right. It's not just about getting through my email effectively, it's about being smart. It's about not distract when I need to focus like a meeting, or when I'm away from work. Our Android version of Outlook has a new feature that allows you to set an amount of time to do not disturb. Or you can have it set to automatically turn off email notifications during evenings or weekends, or even during calendar events like meetings.
Now, I like to switch gears from Microsoft Teams. Microsoft Teams is a shared workspace from My Converse for all of my team conversations, files, meetings, and apps. It gives me real time chat with anyone inside or outside of my organization. And here, you can see the chat I have with all of my co-workers. It's also a full calendar and online meeting experience. But where teams really shine is how it allows us to collaborate -- how it allows me to collaborate in this shared Teams workspace. As you can see, I can converse with a team, share and collect files or even pin apps depending on what works best for the team. Here, I’ve been asked so we can watch a previous demo that I’ve done with Microsoft Stream and YouTube. And here I can check social media metrics to see how our demo did online. Also, if I want to add another half, I have a tab here where I have a big selection of first and third-party apps to choose from. For instance, I could choose Excel, I could choose OneNote, or if I was on a development team, I could add a shared code repository on GitHub.
Microsoft Teams brings together everything you need in one place, letting you work from anywhere and making it easy for you and your team to connect, share files and work with all of your business applications.
Now, I like to introduce you to Microsoft Search. What I’m about to show you is available for public preview to Microsoft 365 subscribers. With Microsoft Search, the best way to get internal company information about people before you meet with them is the same as what you’re already used to doing. Just search for it on Bing. A Bing search in Edge mobile browser for Chris Capossela who is the CMO and my boss, gives me key information about him at a glance. Because I am signed into Bing with my Microsoft 365 credentials, I can see internal company information, as well as being public search results like is LinkedIn page and is Wikipedia entry.
In addition, I can see his office location, files he’s shared publicly, where he sits in the org chart and even groups he's a part of. All of this from a single search in Bing in a browser on my phone. But of course, it’s also available on PC. As you know, we’re in the middle of the holiday season. And I’d love to take some time off around Christmas to go visit my family back in Maryland. But I can never seem to remember the URL or the name of our internal time-off management tool. So I can just search for something as simple as vacation, and there it is, our internal time-off management tool. I could never remember the official name the time of reporting tool.
And before Microsoft Search, if I didn’t search for those words exactly, I never would have found it. I could navigate to the full tool but for now, I can just show the basics. I can check how many vacation days I have, how many days of sick leave and how many floating holidays. And I can do all of this without leaving the search experience and the modern power apps widget. Being able to find corporate resources using natural language is a powerful tool to increase employee productivity. And we’re going to be bringing this capability to many more Microsoft 365 products in the coming year.
Now, I want to show you a new experience between my Windows Phone, my Windows 10 PC and android phone that we just released this fall, called Your Phone. So often I’m sitting at my PC trying to be very productive and I get that text from my friends or family. I pick up the phone to answer and the next thing I know I've already lost 10 minutes. Not only do I have to respond to that text on the phone keyboard, but I get stuck into other notifications, social media posts and all the other things that smartphones do to distract us. Now, with the Your Phone app, I can get my text and photos right on my PC.
Let me show you how it works. This is the Your Phone app I downloaded from a Microsoft Store. You can see all the recent text conversations I have right here and I can reply to it. My force and skills do need work. But I can reply to it on my keyboard, so I can type my message faster. I no longer get distracted by the five missed calls from telemarketers that I didn't want to talk to and I can reply and just get back to getting work done on my PC.
Another fundamental experience on our phone is photos. We've all had that moment where we had taken a picture of a phone and we want instant access of it on our PC. Let me show you how that works. I can paste pictures from the Xbox adaptive controller for a presentation I have later for work since I work in Xbox marketing. So, what we can do, so I can just take a picture of the setup and it shows up almost instantaneously on my phone or on my PC. And then we can drag this photo directly from here right into the PowerPoint presentation I've been building. I really love how easy this makes it for me to use the phone and PC together. Your Phone is available in Windows 10 and Android phone app stores today.
So, this gives you a sense for how I use Microsoft 365 each and every day, but so much of the work we do is about empowering others. So, I'd like to invite on stage Jessica Rafuse from our accessibility team to show us some of the amazing work we've done to make presentations more inclusive. Jessica?
Good morning, everyone. My name is Jessica Rafuse. I am a mother, an attorney, a former administrative judge, and I'm also a person with a disability. At Microsoft, I lead our strategic engagement with organizations that focus on people with disabilities. Microsoft 365 can create and deliver more inclusive presentations for all of us. But today, we're planning a birthday party.
So today I'm working on a PowerPoint slideshow for the birthday boy, my son Spencer. First, I'm going to insert a photo of Spencer. Automatically, PowerPoint designer recommends some layout options for me to choose from. The AI that powers the feature creates an aesthetically pleasing slide in just a couple of clicks. As someone with muscular dystrophy, like many people with disabilities, we are masters at finding efficiencies just a few clicks saves us time, which is better for everyone.
In addition to layout, AI is also calling on computer vision to recommend alternative text or alt text, for the photos I insert. Alt text is a description of an image that is useful for someone who is blind or low vision who's using screen reading technologies. Our friends, Eric and Rebecca, they live on the East Coast so they can't make it to Spencer’s party, they are blind and when I email them the slideshow, their screen readers will read aloud the alt text, so they can enjoy the photos as well.
In this image, you see that the alt text is recognized by AI as a young boy in a yard. That's accurate but I can also modify it to an adorable young boy in the yard. I know, he's pretty cute. Our birthday party is not complete without a timeline of Spencer’s key milestones. PowerPoint designer can help with that, too. A simple list of key moments can be transformed into a beautiful timeline, again, very quickly. This one looks good. These inclusive tips are really good for everyone.
So our slideshow is almost ready to go. But before we want to ship it, I want to make sure that the entire presentation is accessible to everyone by using the Accessibility Checker. In the review tab, right near spell-check you'll find the accessibility checker. This will not only show me the accessibility errors, it will also give me suggestions for how to fix them. Okay, the day of the big party has arrived. All of the grandparents, the aunts, uncles, they're all huddled in the living room waiting for me to deliver our slideshow, and AI is here to help too. Presentation translator is located in the slide show tab. You simply select Start subtitles, choose the language, in this case English to English and get started.
So a new slide pops up with a code. You can take a picture of that code and you can join our slideshow. Our guests or Spencer's grandparents are hard of hearing, even his friends' parents who speak a different language, everyone can use captions for a more inclusive experience. Go ahead and try it, it's free and available now. PowerPoint designer, Auto Alt Text, Presentation Translator, each of these features creates a more inclusive presentation, no matter where you are. And people with disabilities have been critical to the creation of these features. When we innovate through the lens of disability, we build products that make the workplace and our lives better.
So please, everyone go out try these features and the latest version of Microsoft 365. And thank you for your commitment to disability inclusion and accessibility.
Unidentified Company Representative
Thank you. Before we go into Q&A, I want to show you one last thing. It's something we've been working on and gives you a sense for what the future of meetings could look like, using some technology that we like to call HoloBeam. It was developed by one of our Microsoft partners, Valorem. They built a shared a 3D holographic meeting experience that we hope will make every conference call and meeting more engaging than ever before. To show us please welcome on stage Sohana Punithakumar. Sohana?
Thanks a lot.
Unidentified Company Representative
You are welcome.
As you likely recall, HoloLens lets you ominous of worlds around you with holograms. This morning, I'll be calling a colleague, Daniella, a design engineer that I've been working with to refine a piece of hardware. CC is here with a camera so you all in the audience can see the holograms that I see in my HoloBeam. Okay, let's get started.
Okay, let’s take a moment to just recap what we saw. First, I was talking to a hologram, which means my colleague Daniella could have been anywhere in the world, but it felt like she was right here. Second, I was able to bring in a 3D model of the hardware that we wanted to discuss. And Daniella, who was remote, could interact with it too. What we saw really just scratches the surface of what’s possible with HoloBeam and mixed reality. We think it could reshape the way people around the globe interact, both at work and at home. Thank you.
Unidentified Company Representative
Pretty cool. What we've shown you today is how we’re making gaming available for everyone. How Microsoft 365 is improving productivity for everyone, regardless of the device they’re using. How PowerPoint can make presentations more accessible and inclusive for everyone and how HoloBeam can make meetings more engaging and immersive for everyone. The technology we create everyday needs to fulfill its purpose of addressing the broadest societal needs so that we can live and breathe our mission to empower every person and every organization on the planet to achieve more.
Now, before we transition to Q&A, let’s take a look at the Surface Hub 2. Thank you, all.
Good morning. I'm Mike Spencer, Microsoft's Head of Investor Relations. I'll be the moderator for today's question-and-answer session. I now invite the speakers to come back out on stage and I also want to welcome Brad Smith, our President and Chief Legal Officer for the session.
I hope you enjoyed the exciting product showcase. If you haven't already done so, after we conclude the Q&A, I encourage you to visit with the Microsoft Store Associates who are on hand in room next door to experience first-hand some of the Microsoft's latest products and services. They're also available to assist with any technical support questions as well.
In the aisles, you'll see microphone stands set up. If you have a question, please queue up at the stand. There's also representative at each mic from the Investor Relations team that can provide any assistance and we'll try to get to as many questions as we can.
Let's go ahead and start first here over here with mic two.
Q - Unidentified Analyst
Thank you. I'm [John Osborne], I'm a physician. I'm representing the shares of Bartlett Nailer. I'm here in support of Columbia River, Tribes and First Nations. In support of those tribes and First Nations, I don't speak for them.
We've heard a couple of phrases today, crucial time in history and deep responsibility. Microsoft benefits greatly from the cloud and cloud computing, cloud services. Part of that is made possible by the Columbia River and cheap hydropower. While Microsoft has benefitted as many others have, those who have paid the price have included Tribes and First Nations. I'm here with a request and that is that -- and I also ask this of Jeff Bezos at the Amazon shareholder meeting earlier this year that leadership here meet with the leadership of Tribes and First Nations. It really is a crucial time.
The Columbia River was once the world's richest salmon fishery, the dams have changed all of that. Climate change is under way. I think we're all aware of that. And I think this gets to the global responsibility that Microsoft has. In the Columbia River Basin, the forests are burning, the glaciers are melting, temperatures are rising, the salmon are dying from the hotter temperatures. We have real needs for attention. At the same time, the United States and Canada are negotiating the Columbia River Treaty. The Tribes and First Nations have been excluded from the negotiating table.
My plea to Microsoft as a world leader is, to the extent that you can, to step in and help these indigenous people to right these historic wrongs and be forward-looking in terms of stewardship. I think that Tahlequah and mother Orca who carried her dead calf for 16 days over 1,000 miles riveted the world on the realities of what's taking place here on both sides of the crest. So, I make that plea. I have a letter that I will leave with the board an economic analysis by the Tribes, the catholic bishops, Columbia River pass letter and the university consortiums on moral responsibility. Thank you very much.
I mean that, the one thing -- first of all, thank you for your comments and suggestions. One thing that we are doing across all of our data center footprint where one of the things I described is how we have 54 regions around the world. And one thing that we have come to realize is that in many of the regions that we operate, the communities that are around our data centers. Some of the most high tech artifacts of the modern world, there is a lot of inequities, there's a lot of -- lack of access to even technology like broadband.
So one of the things that we have done, even in the last year is really taking a bunch of initiatives like a batch to bring, for example, rural broadband connectivity so that they can have access to healthcare and education. But in the spirit of what we did there is what I think we should definitely take a look at what you brought up with the Columbia River and the native communities there and we definitely will do so.
Yes, I will just add. We have been working with some of the tribes, including in that area. And as Satya mentioned, we've actually recently just a few weeks ago announced an agreement with the broadband provider to bring broadband access to some of these tribal lands. We're also working with them to promote stronger educational opportunities but we can have a conversation about this, it's a good product. Thank you.
Okay, thank you for the question. Let's go to mic three. Please.
[William Nyberg], a shareholder. With Azure being coming to the world's computer, what will be your strategy to navigate through the immense political differences including tariffs?
I mean, overall, the goal we have is to ensure that the computing resource, which is I think going to become the most -- one of the most important resources for any society, any economy to thrive. So as I described when every walk of life in every part of our economy is increasingly digitized, the new digital or rather the need for more compute is going to be ever increasing. And that's why we have built the footprint. That also means that we have to be a mindful of all of the regulations and complying with those regulations is a very important aspect. That's why we're not only just building a large footprint, but we also have the broadest compliance of any cloud. So that's what we're doing. But at the same time, I think we also work within the framework of laws across the countries in order to ensure that there is really security and privacy in our cloud. And that's something that we ensure for any customer, is the consumer, customer, or an enterprise customer. I don't know, Brad, if you wanted to add.
No, I think that I think that covers it. I was going to suggest rather than make the guest who's come the longest has been stay on the longest amount of time to get to the microphone, why don't we let Reverend Jackson to ask a question and we'll get to the others at microphone two as well. Okay.
Good morning. I want to address the shareholders today as I did a few years ago. The human dimension of this situation as the gap gets great between the haves and the have much, the vertical gaps. We've globalized technology and athletics. We've globalized human rights and workers' rights, women's and children rights in environmental security. This may have this tremendous family explosion. We have children in cages on the borders and armed men at line to shoot refugees, so when the crisis that must also be addressed by this vast technology. We've seen some progress along the way. Microsoft has led the way in diversifying in board directives. And right three years ago, there were about three African Americans on the Board of Directors, [indiscernible], now there are 20. And you are leading the way with literally Chairman of the Board.
Microsoft was an instrument in bringing in the financial services firms into numerous bid offerings in over three years. In three years, lots of firms have demonstrated talents and capabilities, participating over through the private tech deals, generally over $20 million in fees. With legal diversity and supplier diverse programs are broken up the new deals of opportunity, I think this channel must be addressed more meaningfully.
Despite the new initiatives, the hundreds of millions of dollars deployed, announcements to do better and improve the tech industry still stuck in the mud. It's more than 2% prime is still alive and well. There's not a talent but there’s an opportunity deficit. I've said before, inclusion leads to growth. When there is growth, everybody wins, so [indiscernible] majority black and brown. Two thirds of our neighbors in this industry that speak Spanish. We do not speak to each other in the hemisphere and we're making enemies of our allies and our national friends. Over 100 million blacks and Latinos live in these other cities. They must be addressed and we want to partner with you in such a process. We must close ranks as never before.
How can Microsoft deepen and expand its efforts to accelerate African American and Latinos represented at the Company [indiscernible] horizontally. Can you transfer this minority firm representation in this debt to capital market programs to include minority firms and 401(k)s for example and pensions. But [indiscernible] with privacy rights and we're addressing that in a very meaningful way. Was that some [indiscernible] [madness] and must not be taken away.
And the dangers becoming technologically advanced and more immediate that they were growing at a tremendous rate in our nation, I guess the -- I think about some of our children in jail on founded smoker weeds, or some joint, locked out of our education, or seniors who don’t have the mobility get to that medicine out to their food. I’m anxious as well to work together in some joint ventures some shared ready to work on these [indiscernible] will lock out of them and listen to the tremendous work by Jamal today. Many people I know in these senior citizens homes is means it means nothing to them, my mother who just died included. And those youths locked away in jails when they come out, they’re still ours, what do we do with them, or those around borders.
And one thing about Microsoft there are no borders, there are no more foreigners in Microsoft’s world. I mean, the language is one message for that. I’m anxious for us to work together how we can make these technologies real to all of us, because a few and few have more, and more and more, less and less those were locked out. The [indiscernible] was private versus privileged for the few. Thank you still very much.
Thank you, Reverend. First of all, for being here as well as your comments and the prod and suggestions. Maybe I start and then Amy and Brad and John, you can add to it. So, on the first point you made around diversity and inclusion, which is a very core priority for us. In fact, even our compensation for me as well as the senior leadership team is tied to actually making progress on this year-over-year. And just this couple of weeks ago is when we released our Annual Report, which shows in a very transparent way, all of our diversity statistics. And it’s good to see the progress we are making, whether it is ethnic and racial diversity, or whether it is gender diversity, there is progress. But we are grounded that there is a lot more distance to cover, and every year and every day we continue to push. Specifically on the African American black and Hispanic communities, one of the new initiatives we started was to actually go do the 50 plus institutions, which are traditional HBCUs, as well as predominantly Latino colleges and Hispanic colleges. And we are now able to attract a much more diverse student body. In fact, for example, the intern class that I spend a lot of time each year is more diverse than ever before, each year we are more diverse and the entering class reflects that.
And so one of the things that we are also working on is inclusion, because if you get diversity in, one of the main things is going to keep them at Microsoft is their ability to find that sense of inclusion and belonging inside the Microsoft community. So we are working that every day that means everyone at Microsoft needs to be trained and mindful and practice the inclusive behaviors. And so that's really what we are doing but it's a very important initiative and an important priority for all of us.
So maybe on the financial inclusion pieces, do you want to talk a little bit about?
I really do appreciate your acknowledgment of our leadership in terms of supplier and partnering with many minority-owned firms. We continue to be proud of our progress on that front. Your push on the 401(k), I appreciate. We will review that every year and I think we'll continue to look at a very broad group of 401(k) offerings. We remain incredibly focused on having the best offers for our employees, so that's a good push and we'll make sure to look into it.
And then I would just say on the other two things, first, on your focus on senior citizens. It is definitely something we're focused on. When we think about what it means to develop inclusive technology, when we think of what it means to make our products easier for everyone to use, you saw some of that I think demonstrated here just in something like PowerPoint. When we think about what it means in terms of screen readers, changing sizes of fonts, I benefit from that myself directly every day. So we are thinking broadly. You may sometimes walk into a Microsoft retail store and find someone who is older as well. So we recognize the importance of that. And we have the opportunity to work with you, Reverend and Rainbow/PUSH. And there are opportunities in the future, and we welcome the opportunity to do more of that.
And then I would just say on privacy. We would agree that privacy is really one of the issues of our time. Microsoft stood up and called for federal privacy legislation in the United States and that was the year 2005. And so each and every year for 13 years, we have consistently advocated for it. And I think the year 2018 is really a watershed year for privacy here in the United States for a few reasons. First, we're starting to see other industry leaders step up as well. When Apple stood up, when Salesforce stood up, those were good days for our industry and I think for the protection of privacy in the United States.
Second, perhaps the biggest watershed of the year came in June, when the state of California adopted a landmark privacy law. And it's clear to us at this stage that we are going to see more states adopt privacy laws in all likelihood in 2019. And the day will finally come when we will get strong privacy protection for the country passed by Congress. And that will be a good day for people and in our view, it will be a good day for the industry, because it will give people the confidence they need and deserve when they are using our industry's products.
And finally, I think in some ways the most interesting data point of the year, Microsoft was the only company when the European privacy regulation took effect in May, to say that we would extend the privacy rights that Europeans got under that regulation, not just to the customers and consumers of Europe but to the customers and consumers in the United States and every country around the world. No other major tech company has yet followed us in doing that. And the most interesting thing I think is this. In the month since May, in a region of over 500 million people in the European Union, 2 million EU citizens have made use of their rights with our services. In the United States, a country that's only three-fifths the population of the EU, almost 3 million Americans have used their privacy rights. And I think that more than anything shows that this is an issue of interest to the American public and we will continue to take new steps and we are committed to continuing to be an industry leader when it comes to the protection of people's privacy.
To Michael, I was jailed in 1960 trying to use a public library, watched America grow tremendously. It was a time when neither was shaking, when the storms are coming on the East Coast and fires on the West Coast. And we just missed the tragedy of Pittsburgh and its ramifications and Charlottesville and [indiscernible] on borders, there is something of a moral nature, because if we are successful all that way do technologically and not inclusive enough to put it this way, the reason why [indiscernible] last week he was here in [indiscernible] Charlotte, even in London, well that’s the plan for the [indiscernible]. And the rule to public and their goals including the referees in fairness was transparent and we can make it. And it's important to acknowledge that we are factoring in that world, because as I listen to [indiscernible] presentations, the assumption of an even playing field world, the inequality, the unevenness jeopardizes all that we are doing. So please we're with you all, now that we've humanized the technology and make it better for those who really need it the most. Thank you so much.
Okay, thanks. We'll go to mic four.
Unidentified Company Representative
Hi there. Thanks for giving me the opportunity to make a comment. I'm a Windows 7 user. I'll probably just keep using Windows 7 to support in it. But the Internet browser support on Windows 7 is IE11, and IE11 doesn't render a lot of features that are in a lot of Web sites today. But there's an easy workaround, all I have to do is install a new Internet browser made by another company. But hardly a day goes by when I wonder why is Microsoft outsourcing browser support on an OS that so many users are still using. Thanks.
Unidentified Company Representative
Thank you for the feedback.
Unidentified Company Representative
You might consider Windows 10…
All right. Let's come back to mic two here.
Thank you. Ken Copley, Capital Executives. Satya, what a great leader and a great team. You're missing a golden opportunity to satisfy a significant unmet need, societal need to start as a nation. Are we really doing everything that we can to reach out to the next generation during the critical period and self development to teach, motivate and develop the next generation to really understand career development? I can't think of a better platform than LinkedIn to help solve society's long term labor problem.
I mean, first of all, thank you for the comment. But what you just said about LinkedIn as a platform for skills development and most importantly, for allowing everyone to reach their economic opportunity is what really got us together as Microsoft and LinkedIn. And we’re very, very excited. I mean, one of the things to me daily habit is when I use the LinkedIn app is to not only see the news feed, which gives me all of the relevant information around all of the topics and all of what’s happening in the industries that I track and the customers that I track and the topics of interest but also training. One of the most -- in the last year if you think about it, there are so many LinkedIn learning courses, which are these micro courses, whether it’s on leadership or on technical topics, or commercial topics that are right there in the news feed where you can go in and snack sizes you can just get trained. So that you are better equipped for the jobs of the future, because the thing that is most exciting for us in LinkedIn is there’s a real time feedback, which is what are the jobs, what are the skills required for the jobs, where are you today and how can we bridge that gap? And so you’re absolutely right about the opportunity ahead. And I would say well on our way to create that platform to be able to really go after that.
Q - Unidentified Analyst
[Technical Difficulty] is really the next generation and some of the youngsters maybe even in high school where they could use a little bit more direction, a little bit more coaching and in terms of what might be out there and available to them with a little bit of guidance that they might not be getting right now and that’s where I see the beauty. You’ve already got the professional network sowed up with the 570 million members. It’s the what I'll term the next generation. But thank you very much for allowing me to ask this.
Let’s go over here to mic one.
Thank you. I am Paul and I am representing the shareholders of the investment acting [indiscernible] taking spot from Bonn, Germany. I am happy to be here and I have a question. I would like to know what’s your reason for Skype or the communication between users, in general? What role does Microsoft want to play?
I mean, it’s a very, very crucial part of Microsoft 365 today. We have Skype and Skype for business and Teams, they’re all related in the sense that it’s fundamentally about bringing people together with video. But really the red -- what we want is a rich scaffolding and I think Teams represents that next opportunity for us where video communications is a super important element but so is text messaging. And as well as this ability to collaborate and communicate in situ with the communications. And so that’s where we’re going. Skype is an important asset. It’s something that we’ve now improved the quality of the back-end. So that people using mobile phones predominantly are also able to be good Skype users. Desktop to Skype usage is something that we are very focused on. And recently we did -- speaking about education, something called the Skype apart, which is the ability for teachers and students in a given classroom to be able to tap into the wisdom of teachers and students across the planet and make connections. And so that was a fun thing where around the world, lots and lots of schools got connected just using Skype. So Skype, I think is adding valuable tool that still remains very popular and something that we’re investing deeply in.
Thank you for the question. Let’s go back to mic 3 please.
Thank you. My name is Doug Kilgore, I am the Executive Director of the Worker Owner Council of the Northwest. We represents building creates pension funds and North American pension funds of our members are large and long-term holders of Microsoft. I want to commend the Company for its ability to improve shareholder value, while making substantial gains and social responsibility. And we appreciate the willingness of the company to address issues that we've noticed on its project here in Washington State. When we look at the policies that you've adopted for manufacturing, we see some very beneficial things within those policies, but no policy that covers construction. So I guess my question is would you be willing to examine that subject and look into adopting a responsible contractor policy that would address its construction needs throughout the world?
So I think we'd be happy to take a look at it. I think we'll have some good things to learn. We'll welcome the opportunity to learn from you and others. I know we have people, because we do a massive amount of construction work around the world, whether it's our data centers around the world, or obviously a huge construction project, that's just beginning on our Redmond campus. And it'll benefit us to understand where our present policy failed to miss the mark and I think we could sit down and take a look at it. So we'd welcome that.
Congratulations on your success.
Great, thank you. Let's go back to mic four.
Hi, good morning, my name is Bart. And first, I'd like to compliment the early founders of Microsoft, how prophetic they were in buildings one through ten that it looks like Xbox.
Well, Bill was a visionary and still is.
Which gives me segue of talking all about education and everything. When the buildings one through ten are going to be demolished giving space to new uses of that area, I was wondering if you would entertain the idea, at least it's my idea du jour, of having a building there that would be called a renaissance school. I don't know if you're familiar with the term renaissance school, we had it back in New York, and I think it's still there. And it talks for the grades of K through 12. And it would be on the campus of Microsoft, The building would rise from the rubble and maybe the name on the building could be called the Mystical Building Seven.
And then continue along those lines, possibly the senior software architect can be persuaded to come back to campus to become the dean or the principal of that school. And what's more important in the curriculum than a music component. Now, the music component would have a music chair or a music person in charge who knows a lot about music and who better than that would be Jim [indiscernible], who would come back, be a teacher or the head of the music department. And then, better than all that, you'd be able to resurrect Uncle Bill's Blues Band. So what you say to my idea du jour? And me, I'm just saying…
I think we are better served by being inspired by your idea than perhaps pursuing every aspect of its literal implementation. But let me just say in all seriousness, we really do think a lot about how to serve education and how to reach people and inspire people, and give them new skills and tools. And there are companies, including some great ones in this region that have adopted a school that have built a school. And we haven't done that. And while we could bring a school into our campus and we would serve well every students who went to that one school, our real goal is to bring technology and advancements and learning to every school in this area and around the world. And ultimately to each every student through devices like and platforms like LinkedIn learning and ultimately, to serve not just the next generation but every generation, because we're all living at a time when we need to keep learning new things. So I would say you're giving us great inspiration. We'll leave the Bill what he wants to do with his time and Jim what he wants to do with this time. But I think you can assume that we'll all work hard to put your inspiration into some form of action.
Well, I was hoping that that would be a prototype the renaissance on Microsoft and then you will spread out…
Thank you for your question. So we actually have time for only one more question. And we have Investor Relations folks in the back of the room for those that we don't get to. I'd like to go to mic three for our last question.
Hi, my name is [Tyler Eckel] and I have done some Microsoft testing for the blind. And my question is what games do you have -- what games do you have for the blind?
It's a great question. I think I'll have to go back and say, what is the gaming investments we're making, as well as what are the accessibility investments we are making so that people can play games, because of the accessibility work. I mean, overall, the things that they've done whether it's the sound escape work or seeing AI have really helped us make break new ground when it comes to, I would call it, information work or just empowering mobility in a much more general sense, but it's a great pride. And let me go back and talk to the team and come back, and maybe offline even get back to you and the specific set of investments around game content that is addressing people with blindness and visual impairment. Thank you.
That concludes our meeting. We thank everyone for coming today. Please travel safe. Again, there are folks in the back of the room if you have additional questions. Thank you.