One Microsoft: Microsoft defends itself at FAM

23777Yesterday’s Microsoft Financial Analysts Meeting was all at once a reaffirmation of Microsoft’s strengths, a defense of its positions, especially in the consumer space, a last dance of sorts for outgoing CEO Steve Ballmer, and a glimpse at a new regime (minus, of course, a new CEO) that is not only running the company, but changing how the company is run.

Right off the bat, CFO Amy Hood let it be known that the CEO search is still ongoing, but there would be no news on that front. But with a couple of panel discussions featuring the new leadership teams, what felt like a farewell address by Steve Ballmer, and a number of indications that Microsoft is rapidly becoming quite a different company.

If there was a theme to this year’s FAM, it was that Microsoft is strong and growing in the enterprise, and it is focusing its efforts in consumer, with an emphasis on “high value” consumer opportunities. Microsoft spent some time yesterday trying to do a better job of explaining to investors why, although products like, Skype, and Xbox may not make a lot of money for the company, they enable more profitable scenarios that wouldn’t be possible without them. As COO Kevin Turner said in his remarks leading off the meetings:

And it also means that on the services side, that really the scale services that we have in the company are really in the consumer space. And as a result of having those consumer services, we’re able to deliver world-class business services at scale, which we couldn’t do otherwise.

CEO Steve Ballmer has been famously credited with saying that he didn’t worry much about stock price, but it was obvious from the tone of this FAM that Microsoft has changed their tune a bit. They shared more info than they have in the past, and promised to continue to do so, unveiling a new financial reporting scheme, and promising to be more transparent, especially in regards to consumer and devices, according to CFO Amy Hood:

So why make a change this big? In some ways, it’s hard. But adding accountability to our progress in all those areas, adding accountability to the gross margin of the investments we’re making in cap-ex, and giving you transparency on how we’re doing in our devices/consumer effort, as well as our commercial business is important.

One of the indications that Microsoft is opening up came in a panel discussion with the senior leadership team. Terry Myerson, Executive Vice President, Operating systems, talked openly for perhaps the first time about Microsoft’s intentions to create a single “silicon interface” for all of its devices:

Thanks. We’ve been together, brought all the OS groups together at the company for about two months now. And we really haven’t been wasting any time in terms of organizing all of our efforts in the operating system area around three key beliefs.

The first of those is that we really should have one silicon interface for all of our devices. We should have one set of developer APIs on all of our devices. And all of the apps we bring to end users should be available on all of our devices.

The second belief was that all of our devices are becoming more cloud-powered. So whether we’re branding them Windows or Xbox, we really need one core service which is enabling all of our devices.

And the third belief was that each of our devices require a tailored experience to be really special for the customer, whether that’s a three-inch phone, or it’s a 9-inch tablet, or a 14-inch clamshell, or a 60-inch television playing Xbox games, we want to facilitate the creation of a common, a familiar experience across all of those devices, but a fundamentally tailored and unique experience for each device.

So our team is now organized in this way. We had a core team that will bring those silicon interfaces together, bring those developer platforms together, approach delivery of apps to the customers in a common way. We have one team delivering the core services that will light up our devices. And then we have satellite teams each focused on each of the device categories, so each of them can be reflective of what the customer expects in that place.

We have a very clear vision of what we want to get done, and we’re moving very fast.

FAM was the first and most concrete example that Microsoft really is changing in substantial ways, from its financial reporting to a new leadership team to a new definition of the value of consumer offerings to basic changes in the way Windows will operate. But perhaps the biggest change became evident as outgoing CEO Steve Ballmer took the stage. This was not a typical Ballmer rah rah sales pitch, although there was plenty of that. In many ways, it was both a goodbye, and a defense of his legacy and the reorganization that in turning the company around, also lost him his job.

If it wasn’t clear before that Ballmer was pushed out, his appearance at FAM left no doubt that if it were up to him, he’d still be running the company for many years to come. At times defensive, at times disappointed, and at times almost defiant, referring to himself as “just a guy who owns 4% of Microsoft”, Ballmer ended with a call to arms for the Microsoft that will go on without him:

And I believe in everything we’re telling you here. And we’ll bring in a new CEO, and that new CEO will have opinions and ideas and thoughts. And my greatest desire will be to see the company be so much more successful four or five years from now than it is today.

And that will be grounded in three things. Number one, we’ve picked a great new CEO. Number two, we made fundamental bets before that new CEO came out. The strategies that we put in place, the approach that I’ve put in place, that the board has endorsed, those things are important. The new CEO is important. And the leadership team and the talent pool that is here is very important.

We have financial strength. That is an asset. The ability to invest, to get into new areas, to think about the next big thing, none of you should take that casually as an investor. I’m not making any specific comment about buying back dividends and bleehty-bleehty-blee, but the fact that we have the financial strength and the wherewithal to really consider the things that will create fundamental new large economic value, that’s a reason why you should want to own the stock, and you should never want to see that go away. We should always manage our downside risks and we should always make sure we have huge upside opportunity.

And for all of those reasons I am very long on Microsoft. I believe in the company as an investment. I believe in what the company can do. I believe in the people and talent that are here. And at least this one shareholder will absolutely be cheering every day, from the day I’m not working here on. I’m MSFT, if you will, all over. It’s in my blood, it’s in my heart, and I’ll have been glad to have served.

You can read more about the Financial Analysts Meeting, and watch webcasts featuring Ballmer, Amy Hood, and the panel of senior leaders, on Microsoft’s Investor Relations site.