At a time when financial scandals have left CEOs in the hot seat, Microsoft Corp.'s CEO Steve Ballmer on Thursday went on the good corporate citizen offensive and attempted to downplay the company's enterprise agenda.
Ballmer and other key executives at a Financial Analysts' day here promised a "more open, respectful" approach as Microsoft pursues a wide-ranging diversification strategy for the 2003 financial year. The plan to grow revenue by up to US$1 billion and extend its dominance across a range of businesses, from the enterprise to small business and consumers, was received by analysts with guarded optimism.
Microsoft CFO John Connors set the stage on the financial front, describing the $1.2 billion the company expects to invest in the business as a sign of Microsoft's belief that the coming 2003 financial year will see it break away from the competition.
Connors announced that beginning with fiscal 2003, Microsoft will report its numbers according to seven business groups that wrap together the company's entire set of product and services offerings: Client, Knowledge Worker, MSN, Home and Entertainment, CE Mobility, Server and Tools, and Business Solutions.
Client encompasses the Windows operating system and embedded OS; Knowledge Worker includes Microsoft Office, stand-alone desktop applications, client licenses, and professional product support; MSN wraps together the MSN Network and MSN Access businesses; Home and Entertainment includes the Xbox console, consumer hardware and software, PC and online games, and the Microsoft TV platform; CE Mobility covers all mobile devices; Server and Tools encompasses the server platforms, .Net servers, premier support and consulting, training, and certification; and finally, Business Solutions brings together Microsoft's Great Plains, bCentral, and Navision acquisitions.
Connors broke out some details from the company's 2002 financial year, noting revenue rose 12 percent to $28.4 billion, largely fuelled by the delivery of Windows XP.
Of that figure, Microsoft's enterprise business grew 6 percent to $5.1 billion, consumer rose 51 percent to $4.4 billion, desktop applications came in at $9.6 billion up 1 percent, while desktop platforms grew 16 percent to $9.3 billion.
Connors admitted that Microsoft didn't hit its enterprise expectations due to the drop off in corporate IT spending, but was quick to argue that it out-performed archrivals IBM and Sun Microsystems. "Sun had a more than 100 percent decline in income. I couldn't pass without mentioning that," he said.
In explaining Microsoft's business, Conners said the company's immediate focus is seeding for future revenue as it goes through a significant diversification program.
Indeed, Microsoft is diversifying significantly into areas such as MSN with the scheduled fall release of its combined Portal and ISP access offering, MSN 8, which is specifically targeted at unseating AOL and Yahoo Inc.
Yusuf Mehdi, vice president of MSN, said the bundled client software and Internet subscription service included online services such as Microsoft Money, Encarta, MSN Calendar, and even a switching tool designed to make the move from ISP competitors such as AOL easy.
"We're going to lower the barriers to switching," Mehdi said. "If you'd like us to, we will go ahead and cancel your [AOL] service."
Ballmer also used his speech to emphasize the breadth of offerings across the seven new business units, attempting to divert focus from perceptions that Microsoft is continuing to make a serious play for the enterprise.
"[The enterprise] is not our focus. We're going to start at the bottom end and scale up," he said.
Some analysts attending the event said Ballmer's comments were politically sensitive to the overall diversification message being pitched to financial analysts.
Dwight Davis, vice president and practice director at Summit Strategies Inc. in Kirkland, Wash., said Microsoft's enterprise focus remains unchanged, particularly if it can capitalize on new revenue opportunities in areas such as CRM.
"They're dodging low to avoid direct competition [with companies like] Siebel," Davis said.
Noting that Microsoft is still a broad consumer company, Davis said the enterprise business has always been something of a double-edged sword. "[Enterprises] ask, "Are they legitimate?'" he said.
Davis was also intrigued by Microsoft's intent to become a good corporate citizen. "Microsoft may be on the verge of becoming a paragon of an open corporation," he said. "They're attempting to go overnight from a monopolist to a financial good citizen. [But] does it eclipse what they've done in monopolizing the desktop?"
Another analyst, Maynard Brandon, vice president of Eaton Vance Management, in Boston, was blunt in his summary. "Microsoft is carpet bombing the enterprise," he said. "If I was a competitor, I'd be really nervous. The economies of scale are clearly in their favor."
Microsoft's Connors closed his speech by saying he hoped the financial 2003 investments would pay off.
"Next year, if it doesn't work, you can tell us we are on the road to the nut house," he said.