Xbox Transitioning From Console to Entertainment Hub, Ballmer Says

"We're entering an era in which the range of smart devices is continuing to expand,” Ballmer said, and the expansion will allow Microsoft to drive Windows “in new ways.” He said the PC has always adapted over the years, moving from a programming machine to one that was focused on spreadsheets, then word processing, then music, then email and the Internet. Going forward, “through the power of Windows, [the PC] will be a tablet machine, a reading machine and a note taking machine,” he said. “We have to push Windows into more and more form factors,” he said. There’s opportunity for the next decade to be one “of great growth,” he added.

With the upcoming Windows 8, Microsoft has “re-imagined Windows” from the chipset through the user experience, Ballmer said. Windows 8 devices will include a touch interface but will work with a mouse and keyboard, too, he said. Windows 8 offers developers the ability to “take advantage of the whole PC,” he said, saying “millions” of developers have downloaded tools for the new OS.

On the gaming side, Ballmer said Xbox has transitioned from a game console at launch 10 years ago with Halo to becoming “a real entertainment hub for the living room.” Kinect, released a year ago, has “changed everything” about how consumers interact with games, movies and music, and was announced as the fastest-selling CE device in history by Guinness World Records earlier this year, he noted. With the number one selling videogame console in the U.S., Microsoft has sights to be the number-one selling console in the world, he said. Calling Xbox still in its “early days,” Ballmer said the amount of innovation possible with the platform is “amazing.” While the past was about games, the future is about “all forms of entertainment,” including movies, music, sports, TV and games, he said. Xbox simplifies discovery of the growing world of content with voice search, which allows users to speak a term they're looking for as the input mechanism, he said.

According to Chief Financial Officer Peter Klein, Microsoft reported record financial performance last year by growing revenue 12 percent to nearly $70 billion. He credited a disciplined focus on managing costs and expenses for improved operating income that grew at 13 percent to more than $27 billion. Klein said the company invested in future growth including the cloud mobile devices and search and that it returned almost $17 billion to shareholders through stock buybacks and dividends, including a recently announced 25 percent dividend bump. Shareholders weren’t as sanguine about the company’s financial management, however. In the relatively short Q-and-A session, two comments focused on wishes that the company would share the wealth more with shareholders rather than through stock buybacks and “sitting on cash."

In response to one shareholder, who directed his question to Chairman Bill Gates on how the company would grow the recently stagnant stock while “sitting on $50 billion in cash,” Gates said “the key thing is the profit stream the company is able to generate” rather than the choices made about whether the profits are paid back in dividends, buyback or retained. “You want to retain enough to be able to take big risks in the face of some economic uncertainty,” Gates said. If a company pays out a big dividend, “the value of the stock will adjust downward because the cash is no longer in the company,” he said. Gates sees “a lot of upside in the phone and tablet business” and said in the Office business, the company has to “keep renewing our excellence and surprising people” with new features.