July 24, 2003 5:55 PM PDT

Ballmer: Tech's future is boundless

REDMOND, WASH.--"Hogwash."

That's how Microsoft CEO Steve Ballmer responded to the notion that technology no longer has the potential to transform lives and make people more productive.

At a meeting with financial analysts here, Ballmer said much of the potential gains technology has to offer have yet to be realized.

"Unrealized, unrealized, unrealized, unrealized," Ballmer said, offering a low-key self-parody of his famous "developers, developers" speech. "We just look out there like kids in a candy store saying what a great world (this is) to live in. The world is there to be transformed."

Ballmer's booming voice and boundless enthusiasm offered a stark contrast to the sea of PowerPoint presentations and the smattering of demos that punctuated the rest of the day-long gathering of financial analysts.

Despite his enthusiasm, Ballmer said he couldn't say whether all that potential would equate to long-term growth of 38 percent or 2 percent.

CFO John Connors, whose job it is to provide a bit more specificity, projected continued sales growth for Microsoft's core Office and Windows products but only modest growth in profits. He also projected continued losses, albeit narrower ones, for its other areas such as software for mobile devices, business applications, home entertainment and its MSN Internet service.

The projections largely reiterated the outlook Microsoft provided when it announced its fiscal fourth-quarter earnings last week.

Looking further out, Ballmer said Microsoft's future lies in tying its development efforts together so that the company solves new problems rather than just adding features to its existing products. That, he said, is why Microsoft is tying much of its development efforts to the release of Longhorn, the next generation of Windows.

"There needs to be periodic big bangs," he said. "That's how we think about Longhorn."

Microsoft on Thursday also announced plans to boost research spending by 8 percent in the coming year, creating as many as 5,000 jobs in the process.

Ballmer acknowledged that a "big bang" strategy makes it hard to project when the software will ship, but he rejected the idea that the company should pursue a more piecemeal strategy to minimize risk.

"That's not how this industry is going to continue to be transformed," Ballmer said.

In different ways, both Connors and Ballmer also addressed the two biggest threats to Microsoft's business, aside from the overall economy. Those risks, they said, are Linux and the company's longstanding legal issues.

As for Linux, Ballmer gave an impassioned speech about why commercial software development will win the day, while Connors again offered a more measured assessment. Connors showed projections that Windows-based server unit shipments will grow 9.5 percent over the next 12 months, as compared with a 24 percent increase in Linux-based servers. At the same time, his forecast called for little expansion of Linux onto desktop computers.

While Connors held out legal concerns as a key reason Microsoft wants to maintain control of its $49 billion in cash, Ballmer said the company had a good year on the legal front.

"It was obviously a good year," Ballmer said. "We were able to resolve more actions than (were) started up."

 

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