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Microsoft's CEO Hosts Annual Shareholder Meeting Conference (Transcript)

Microsoft Corporation (MSFT) Annual Shareholder Meeting Conference Call November 19, 2013 11:00 AM ET


Chris Suh - General Manager, Investor Relations

Ryan Asdourian - Senior Product Marketing Manager

Bill Gates - Chairman, Board of Directors

Steve Ballmer - Chief Executive Officer

Amy Hood - Executive Vice President and Chief Financial Officer

Brad Smith - Executive Vice President and General Counsel


Ladies and gentlemen, please welcome Microsoft General Manager, Investor Relations, Chris Suh.

Chris Suh - General Manager, Investor Relations

Good morning and welcome to the Annual Meeting of Shareholders. I am Chris Suh, General Manager of Investor Relations. Welcome also to those attending the meeting online. We are streaming live today on the Investor Relations website. We strive to make this meeting as inclusive as possible and are excited to offer shareholders the opportunity to vote via the Virtual Shareholder Meeting. Thank you for being with us today. We greatly appreciate your interest in the company.

Let me first start by introducing Mike Williams and Jason Rissanen representing Deloitte and Touche, our independent auditors. At this time, I would also like to now introduce our independent Board of Directors. Dina Dublon, Member of the Audit and Compensation Committees; Dr. Maria Klawe, Member of the Compensation and Regulatory and Public Policy Committees; Stephen Luczo, Chair of the Compensation Committee, Member of the Audit Committee; David Marquardt, Member of the Governance and Nominating Committee; Charles Noski, Chair of the Audit Committee, and Member of the Governance and Nominating Committee; Dr. Helmut Panke, Chair of the Regulatory and Public Policy Committee, Member of the Audit Committee; and John Thompson, Chair of the Governance and Nominating Committee and Member of the Regulatory and Public Policy Committees.

So before we proceed, let me review a few housekeeping items. Please take time to visit our Microsoft store in the adjacent room. We have several of our products showcase, including our latest Surface and the impressive Nokia Lumia 1020 and you can also preorder the Nokia Lumia 1520, our new six-inch tablet. We also have plenty of knowledgeable store associates on hand to help with any product related questions you might have.

As in prior years, members of the Investor Relations teams are also around and are available to answer your questions at the check-in desk located in the lobby, or around the area of the store. Please be sure to visit the Investor Relations website. Our goal is to maintain the Investor Relations website as the authoritative portal to which visitors can easily find financial and business performance information about the company. You can sign up for e-mail delivery of the proxy, as well as alerts and RSS feeds to have information, including quarterly earnings announcements pushed to you in real-time. The web address is microsoft.com/investor. If you parked in the Meydenbauer Center parking lot, your parking will be provided free of charge, you will not need to get your ticket validated.

American Stock Transfer & Trust Company has been appointed the inspectors of election for this meeting. The inspectors are located at the reception table in the lobby. Most shareholders have already voted by proxy and your proxy votes have been tallied. If you are a shareholder of record or a beneficial shareholder holding a legal proxy from our bank or broker and you want to vote your shares now or change your vote, then ballots are available from the inspectors at the reception table in the lobby. Filling out a ballot and giving it to the inspectors will have the effective revoking any earlier proxy you gave. Beneficial shareholders with voting instruction forms may also submit their instructions using the computers at the reception table. The polls are now open and will close in a few minutes following the presentation of matters subject to a vote. Following the business portion of the meeting, we will have some time for Q&A.

So with that said, let me begin by saying it’s an incredibly exciting time for Microsoft. We have begun the transformation to a devices and services company. And with the One Microsoft realignment, we have improved the way we develop and bring innovative new products to market such as Surface, Windows 8.1 and Office 365. Later this week, on November 22, we will be launching the much anticipated Xbox One console, which promises to revolutionize the living room with new scenarios for gaming and entertainment.

So before we get started with the business portion of today’s meeting, we thought we’d show off some of these exciting new products and show you how it all fits into our broader devices and services strategy. Please help me welcome Ryan Asdourian to the stage. For those of you who are here last year, you remember Ryan from his great demo well he is back this year to show you the latest and greatest that we have to offer. Ryan?

Ryan Asdourian - Senior Product Marketing Manager

Hi everyone. I am Ryan Asdourian and it is great to be here back at the Shareholders Meeting. Now, some of you may remember from last year, I told you a story about my mom. Now, this year they actually invited me back and so I brought along my wife and, hi, honey, she is there in the back. I figured I’d tell you a few stories about us and about my life. Now, I lead a pretty busy life in addition to working at Microsoft. I am actually also the mascot for the Seattle Seahawks. Thank you. And I spend a lot of my free time listen to that volunteering and fundraising for the National Multiple Sclerosis Society. Now, I need devices and services that are connected, that are personal and allow me to work and play at the same time. So here I brought a number of devices with me that I am personally logged into, so that I can show you a bit of how Windows really makes my life great.

Let me start with the phone that I actually use every single day. This is my Nokia Lumia 1020. So this phone since getting it, I no longer have to carry around a digital camera. Why is that? On the back here, this is actually a 41-megapixel camera. No other smartphone comes close and the pictures that this device takes are absolutely amazing. This is my start screen, right here and scroll through and I get all sorts of live tiles with lots of rich information. I have got a family tile, my friend’s tile lots of different apps. One of my favorite things to do on here is actually play chess, so I have got my chess app here, all loaded up so I can have some fun with that.

Let me actually bring this up to the big screen, so you can follow along on some of the other things on the phone. Go ahead and bring this up. And what you see here is my lock screen. Now, the lock screen can be customized with lots of rich content, your photos. One of the things that my wife and I love to do is actually customize our phones with the Bing photo of the day. So every single day we wake up and we have a beautiful photo to look at. We login here. We have got our start screen. I have got some of our favorite apps here, Foursquare, Twitter, Vine, Facebook. And of course here is the NFL Mobile app, this helps me keep in touch with all the different league scores, manage my fantasy team and of course, I am playing around on this, I get all sorts of updates around the league. And there is the Seahawks, so I can pin my favorite team.

Now, also one of the things on here is that with Windows Phone, you get Office built-in, doing a little holiday shopping, so I was capturing some great gift ideas that I can use for the holiday season. I go ahead and I will make a couple of additions here. One of the things that you heard Chris talk about was the Nokia Lumia 1520. So I am going to go ahead and add that. Now, as soon as I add that on my phone, because my one note and Offices connected through SkyDrive, it actually syncs to all of my devices. I am talking about the Nokia Lumia 1520 figured I’d show, yes, I have got it right here as well. This is a beautiful six-inch device. You can see that screen gorgeous, gorgeous screen. It’s got 1080p graphics. And what this really means with this big screen is get even more customized personal data right on your start screen. Inside, you have also got a Quad Core processor and on the back you’ve got a 20-megapixel camera. So again, you combine all that and you just really have an absolutely amazing device.

Now, I will go ahead and put this one down and I have got another phone right here. This is a little bit on the smaller side. It’s one of the fastest selling smartphones, the Nokia Lumia 520. It’s great for cost-conscious customers and sells unsubsidized for only $79, great, great value, you get a super-responsive four-inch screen and it’s available in a range of exciting colors, beautiful, beautiful phone. Now moving up in size, I wanted to take you through a few Windows 8.1 devices. When you know actually got advice right here. This is one novel mix. It’s 8 inches, it runs full Windows 8.1. I will show you the back right there, there is beautiful aluminum back. This comes for under $300 and includes Office. Surprise, surprise, I got another one right here. This is the Dell Venue 8 Pro. And again, both these devices at 8-inches, they are under $300. They come with Office. And you can run everything on here. I can show you I have got one note, which actually has all sorts of things sync through my SkyDrive of course on this size device I actually love playing some games, so I kind of brought this. You can kind of see it driving this truck see how I usually crash, there it is back flip, really fun. So you lots of different apps you can kind of play on here. And if you will notice what I just added to my one note shopping list, the Nokia Lumia 1520 that’s already here synced up to this device. I type it on my phone. It ends up on my tablet. I type it on my tablet, it end up on all my devices. I will just type Dell Venue Pro and I will have that right there.

Let me go ahead and put that one down. Over here I have got the Nokia Lumia 1520. The thing I want to show you about this one is go, login here, alright there we go. So this is the Nokia 2520, it’s a great 10 inch tablet. It runs Windows 8.1, it’s perfect kicking back, checking my fantasy football league or just browsing Facebook, go ahead and this is the Windows 8 app for Facebook right here and you will see this is all my notifications. Its beautiful app it’s got in line pictures there, people I care about on the right and then all sorts of things that I can manage my Facebook account from on the left. If I scroll down you will Outlook, there is Picture Me on Sunday pretty fun, so I can go ahead and put that up on this.

Now one other things about this tablet that’s really great is it comes with a full HD screen to get beautiful graphics and it actually has LTE built-in that means that almost anywhere I go I am connected with this device, not the design of this device really goes hand-in-hand with the Nokia phones. Here I have got my 1020 and my 2520. And this Friday you can actually pick up both of these devices for only $300 that is an absolutely incredible deal to have two great devices.

Alright now moving on along the table, here I have got the ASUS T100. This is a 10-inch two-in-one I will go ahead unplug this I can show it to you. It’s got an Intel Quad Core processor and a detachable screen. It also comes with Microsoft Office, it’s only $349 and it’s easy for me to balance between consumptive and productive modes using this PC. Now when I am just relaxing I have got great apps to keep me entertained. One of those apps is Flipboard. Now Flipboard is one of the top apps on the iPad today and what it does is it aggregates content from magazines. It just shipped on Windows last week and is already getting rave reviews. You can see just how beautiful this is, I can kind of flip here and you see I get lots of different – I can make sure you can see that I can flip back and forth between these pages. It flips just like a magazine. Now this is just one example of how we continue to add top apps every single week to the Windows platform.

Now to show how versatile this is, I want to also show you a Word file that I have got open here. This is just the Word doc. It’s in reading mode because I am in my tablet. I want to kind of read on this device. I can scroll nicely here, so beautiful. But because this is Windows I can also be productive. What should I do? I just snapped this into this doc right here, very nice and easily. And then just like that I can go ahead, I can start typing on this keyboard, it works perfectly.

Alright now I have got some great laptops that come in multiple form factors here. There are powerful processors, beautiful screens. This first one that I want to show you is the Lenovo Yoga 2 Pro. Okay, one cool trick that it actually has watch this, I can fold back the screen, but as I continue I can actually fold it all the way around, it flips 360 degrees and becomes a beautiful tablet. Here you see my start screen right there. And one other things that I like to do with this PC in particular is put it in what we call tent mode where I can just set it down works as a beautiful tablet. So I will put this back here and that brings me over to the Samsung ATIV Book 9, really powerful beautiful screen. Both of these PCs have what’s called 3200 x 1800 resolution screen, what does that mean? Quite simply you are going to have the most beautiful and crisp images you can imagine on this PC.

Now I talked about photos that I will take on my Nokia Lumia 1020. Normally at this part of demo I will take a picture of everyone in the audience and I can show you how that syncs through all my devices. I think I did that last year with all of you. So this year instead what I thought to do is I would actually show you a couple of pictures that I have taken over the past couple of months since I have been carrying around the Nokia Lumia 1020. Now what you can see just how amazing some of these are. Now let’s load these up you can see this on the big screen. Here is a picture of my wife and one of our friends and will flip through here, this is a picture of really cute dog and to show you how powerful this is let zoom and you can see just exactly how cute that dog is. But what I will draw your attention to over here is actually look at the blades of grass, look at how crystal clear they are, really cool. And this is all done with the camera that I have on my phone that I carry around in my pocket every single day. They keep going is some more fun pictures. This is at a concert, this is on our roof we are having some food and captured the moment on the golf course. And then this is actually a video of a band that we like and what I want you to pay attention to is, notice I just zoomed in we were in the back of the concert and you can hear clearly the sound from the band, the lights are changing as they are playing but the band stays in focus the entire time. This is again all done from the back of a room with my Nokia Lumia 1020, really, really powerful camera.

So let’s move on here this, let me bring this up here really quick so you can see this. If you are if you are in the market it’s up to your home PC. This is the HP ENVY recline, it’s a gorgeous 27-inch all-in-one that comes with a full HD display and built-in Beats audio. Now at our house we have an all-in-one in the kitchen because it’s great for entertainment, but it’s also great for stuff like the Bing Food & Drink app. Now this allows me to see lots of different recipes. I can dive into this, it gives me the ingredients, tells me how to cook it all that stuff, which is fantastic. And it works great in our kitchen.

Another app that I want to show you one here is Foursquare. Now Foursquare is one of the most popular applications on mobile devices. It allows people to both check-in and share information about places they love. Now because of what Windows 8 offers the Foursquare team have made this one of the most beautiful apps on Windows 8 and the first tablet that they have chosen the ship on our Windows tablets. I have loaded up here, so you can actually see just how beautiful it is. You can dive in and it immediately knows where I am and so I can see different things around us. There is a Microsoft store John Howie Steak. I am going to go ahead dive into John Howie Steak and I get information about it immediately. And here actually get more photos I can pull in lots of rich imagery. Right there inside the app I also get tips, I get reviews, I get lots of rich information and of course the same app that I wanted – that I showed you my phone that I enjoy playing in my spare time is chess. So I have got here as well. I can kind of make a move I am up here, but I will wait for later to do that. Let me put this bag down now.

Alright that brings me over to Microsoft’s new range of Surface tablets, Surface 2 and Service Pro 2. We announced them in New York this past October. So let’s start with Surface 2. Straight out the gate the first thing that you see is its lighter, its thinner and it’s faster than its predecessor. Now only that it’s got this integrated kickstands with multiple angles that allow me to find the perfect viewing angle so I can use this exactly the way that’s right for me. Now it also has a beautiful 1080p screen, it comes with Office including Outlook it comes with one year of Skype voice calling and it comes with 200 gigabytes of SkyDrive storage. Remember SkyDrive is that thing that connects all of my devices. And 200 gigabytes of storage, well that’s enough space for you to take a photo every hour from the moment someone is born until they graduate from college, of course also got multiple colors of keyboards so I can customize this even further.

To snap that in alright put that down and I will come over here to Surface Pro 2. Let’s take a closer look. Now the first thing I did over there is I showed you some photos. Since I am up here and I can kind of show you whatever I want, I figured I would show you a photo that might get me in a little more trouble. This is actually a photo of our closet when it kind of fell off of the wall. This was not a good day, not a good thing to happen to your closet, it fell right off. And you got to kind of act fast now, well I am up here, I figured, if I am going to get in trouble for showing this photo I might as well just kid of share it with a whole bunch of people. You can see I just can share right from there and it’s a closet fail and I will tweet that out just like that. So see how that goes. But in the moment, you really got to get that fixed quickly. So what you do one of the places where we go to do home repair is Home Depot. Now using Windows 8.1 you have been – being smart search built directly in. I am going to just type Home Depot as I do this you will notice it’s not you know the same 10 links you have become accustomed to with search. Instead you get a rich display showing all sorts of information from your PC, from your web, lots of rich information. And I can quickly find the store I can even install the Windows Phone app.

So next thing we were at Home Depot and I actually have to say our closet looks better than it’s ever looked before. So that was a good thing. Now, there is a whole host of new things at Windows 8.1 and I figured I would show you a couple of those things right here. The first thing to note is we brought back the start button. So you see that in the bottom left right there, it makes it easy for me to go back and forth between my start screen and the desktop, just press right there. Now, on the start screen itself, there is even more ways to personalize it. So you have got some photos up there. I can go ahead and resize those. A nice way to actually customize this just the way I want it, very nice and easily. And there is more apps as well. If I go into the store, you will see we actually redesigned the store to get you more of the information and more of the apps that you want. There is thousands of apps and we have got picks for you. You can see stuff that’s trending, what’s new and rising lots of ways to continually explore. And I will bring up SkyDrive one more time to just emphasize the point that it’s built in. And what does that mean? I have to tell you, it’s absolute magic the way all of your stuff just moves between all of your devices. If I edit a photo, if I save a Word document, if I am playing with a PowerPoint file, any of those things automatically sync and the changes I make the content flows between devices. So that’s a bit of Windows 8.1.

Now, I am going to get to show you some of the new capabilities of Xbox One, which will be launching later this week in New York. Now, our heritage in Xbox as the best-selling games console will continue with the next generation, but we set out to create something entirely unique, a complete all-in-one system that will have the best games. It will have the best online services and will have the best entertainment experiences. And it’s built for the future. So today, let me show you a little bit of how we are going to deliver on this vision and promise. Xbox, go to Forza Motorsport 5; Xbox, watch ESPN; Xbox, snap NFL; Xbox unsnap; Xbox unsnap; Xbox go to Forza Motorsport 5. I will just caveat that this doesn’t normally you don’t normally wear a microphone in your living room, so I will try this one more time. Xbox go to Forza Motorsport 5, here we go, spend out a little bit, alright; Xbox, show my stuff. Now, when I say my stuff, it’s really my stuff. Notice the same live tiles, the same tiles that I can pin with my applications and the stuff that I care about, the Xbox knows who I am and it knows how to give me a personalized start screen. So one of the things you will notice when I was doing that is it was switching very quickly between the things that I am doing between the games, between watching ESPN and you will notice that the whole time I am using the best controller in the world, my voice. So it’s really, really fun and easy-to-use.

Now, I have got a cable box also hooked up to it and that’s why I am able to bring in lots of rich information, bring in live TV. And let me just show you a little bit of how that pulls in some information. Xbox, show guide; Xbox, watch Discovery Channel; Xbox, go to Internet Explorer; Xbox, go to SkyDrive; Xbox, go to SkyDrive; Item 1; Item 6; slideshow. And here I am pulling up lots of pictures from my SkyDrive, playing them in slideshow mode. Again, these are the same pictures that are on my PC, the same pictures that I take with my phone and it really offers a great way to bring these pictures into the living room on my big screen, which is just absolutely great. Xbox, go home; Xbox go home; fast, fluid beautiful, Xbox One offers me more than just gaming, but an entire entertainment system.

Now, as a big sports fan, I am excited to share that the NFL experience on Xbox will also include an integrated fantasy football solution enriched live-viewing experiences, all sorts of stats on your favorite players, your favorite teams and it’s really just a personalized NFL destination. Now, Xbox One is shipping this Friday and we are really excited to be a personal and connected part of the family room. And I forgot to show you one extra really cool thing with this. Let me go ahead and I am going to step out from in front of the connect sensor. And as I do this, I am going to actually sign out here. One of the things, that’s great about this is Xbox knows exactly who I am. So I would say goodbye to me right there. Now, I am going to step in front and using biometric recognition, it will know exactly who I am. I just step in front, takes a look at me. And as you can see says hello Ryan, which is fantastic. Now, I hope that gives you a brief glimpse of why and how Microsoft delivers the most personal, familiar and connected experience across any company. I have showed you content across all of my devices, my content, my apps, and whether I am at work on the go or lounging on the couch, they are all at my fingertips. So thank you for having me. I hope you enjoyed my story and I hope you enjoy the rest of the meeting.

Chris Suh - General Manager, Investor Relations

Thanks, Ryan. That was fun. I know my family is personally super excited to get their hands on Xbox One as well. So before I welcome our panel to the stage, let me remind you that we may make forward-looking statements during this meeting which are predictions, projections or other statements about future events. Actual results may differ materially from these forward-looking statements, because of a variety of risks and uncertainties about our business, which we describe in our filings with the SEC, including our Form 10-K and 10-Q.

I would now like to introduce our speakers and welcome them to the stage. Bill Gates, Chairman of the Board of Directors; Steve Ballmer, Chief Executive Officer; Amy Hood, Executive Vice President and Chief Financial Officer; and Brad Smith, Executive Vice President and General Counsel.

Bill Gates - Chairman, Board of Directors

Well, good morning. It’s great to have you all here and have the opportunity to talk about what’s going on with Microsoft. It’s been a big year for Microsoft in a lot of different ways and even this week is going to be pretty exciting. We have got the Xbox One availability. We have got the new Nokia devices. In fact, Thursday at midnight down the street here at the Microsoft Store, you can be there and be the first in line. I have told my kids though that it’s a school night, so even though in the past, Paul and I used to sneak out after midnight and use computers, I don’t want to see that happening, so my kids will be asleep that night.

When I look back at the last year, I am proud of the things that we have accomplished and I am proud of the role our software plays. It’s a very dynamic and competitive industry. And so at the same time as we feel great about our work, we can’t underestimate the challenges we face or the opportunity of what software has left to do. In so many ways, we have just scratched the surface of what can be done. And Microsoft has some amazing strengths that we bring to this. The digital revolution is just at the beginning and we can use our software to improve people’s lives. We can make people more productive and we can make them – make it easier for them to communicate and organize their personal lives.

So we are going to transform a lot of things, even reading and writing itself, interactive documents, the way you think about your collection materials, the way you annotate, the way we think about communications, getting a group of people collaborating together will make that very different, the whole idea of a business meeting and how that can be technologically enabled. So, all our customers, businesses, governments, even nonprofit groups like the Gates Foundation will be able to be far more effective. And for individuals, they can control their information. What that share, what they don’t share, the whole way that they network in social communication. So we have got a lot of assets as a company to pursue these things. Some of them are longstanding assets. A lot are things that are new or new to the company. And that’s the foundation that we can build our future on.

Now, at the same time, we have a process going on with the Board of Directors to select Steve’s successor as CEO. And the Board established a search committee, so I thought I would say a few things about what’s going on with that process. I am a member of the committee working closely with the lead, John Thompson, as well as two other members, Chuck Noski and Steve Luczo. Together with the Board, including Steve, we have been doing a lot of meetings with both internal and external candidates. And we are pleased with the progress. In fact, we met last night and talked a lot about where we are. As John Thompson said at the Financial Analyst Meeting in September, it’s a complex role to fill, a lot of different skills, experience, and capabilities that we need. It’s a complex global business that the new CEO will have to lead. And they will have to drive across fundamental transitions to create new growth and to attract and manage top talent.

We will have to build on our strengths while addressing areas that we have got weaknesses or challenges. The person has to have a lot of comfort in leading a highly technical organization and have an ability to work with our top technical talent to seize the opportunities. We are looking at a number of candidates, and I am not going to give a timeline today, but we are pleased with our progress and feel that we are going through the process that will get the best person for the job.

As has been mentioned, this is also a milestone for Steve, its his last shareholder meeting as CEO. And we will have time later for goodbyes. But I do want to recognize some things Steve for the leadership he has show over the last 33 years including the past 13 years as CEO. In our entire 38 year history, we have had only two CEOs and that alone makes us quite unusual. Steve and I really appreciated all the joys and challenges that came with being CEO. It’s a real privilege to lead the incredibly talented group of employees we have, it’s a privilege to work on the technology that’s changed the world. And it’s been exciting to deal with the problems that occupy the CEO’s day. We clearly shared two other things as well. We got a commitment to make sure that the next CEO is the right person for the right time for the company we both love. And we shared commitment that Microsoft will succeed as a company that makes the world a better place, so thank you for your support.

Amy Hood - Executive Vice President and Chief Financial Officer

Thank you, Bill and good morning everyone. Before I begin the procedural part of the meeting, I would like to introduce myself. I am Amy Hood. I have been in my role as Chief Financial Officer a little over six months. I am so honored and excited to be a part of leadership team at Microsoft, an incredible company doing incredible things. And today is really the first opportunity I have had to meet and talk with many of you, so thank you for joining us today. Let me start with a quick recap of our financial results. In fiscal year 2013, we grew revenue to a record $77.8 billion. This reflects strong demand for our enterprise and cloud offerings and increased consumer demand for services like Skype, Outlook.com and Xbox LIVE.

During the year we paid $7.7 billion of dividends representing a 15% increase over the prior year and bought back $4.6 billion of shares. While still early, fiscal year ’14 is off to a strong start. In July we announced the realignment of the company to align Microsoft. Subsequently we also announced the proposed acquisition of Nokia’s devices and services business which we believe will accelerate our mobile strategy. Importantly we did all of this while delivering record first quarter revenue. Our enterprise business continues to be very strong despite a macro environment that some of our peers and competitors have characterized as tough. We are driving our business forward with industry-leading solutions in key areas like collaboration, unified communications and cloud services. As a result we are seeing high satisfaction among our enterprise customers which is driving high enterprise agreement renewal rates.

At the same time we are making meaningful progress in our consumer business. We are seeing growing engagement and adoption across our major consumer services, including Office 365 Home Premium and Bing. And the new Windows provides high-value experiences for our consumers that allow people to use our devices and services all day long whether at work or at home. With Office 365 we are also moving towards a subscription model. This means it will be able to deliver innovation quickly to our customers. It will always be on the latest and greatest version of Office. We launched Office Home Premium, our consumer version earlier this year and already have over 2 million subscribers. They can use Office 365 on up to five devices and they also get additional services like Skype and SkyDrive, two great Microsoft products you saw on the demo earlier from Ryan.

As we look ahead we will need to keep focused on making investments on our long-term growth in areas like the cloud. It’s critical we continue to make investments in datacenters and servers to increase our global footprint to be able to take advantage of Azure, Officer 365 and all of the cloud opportunities ahead of us. In addition to services we are also focused on bringing great hardware to market. We will continue to work with our partners on exciting third party devices. In this holiday we will have a wide selection of Windows 8.1 devices available, including tablets and PCs many of which were demoed today for less than $300. At the same time we continue to focus on Microsoft devices like the Surface and Xbox gaming and entertainment consoles.

During the first quarter we also announced the 22% increase in our quarterly dividend to $0.28 per share and announced a $40 billion share repurchase program. We returned $3.8 billion in cash to our shareholders, the highest quarterly amount since the second quarter of fiscal 2011. Clearly, our company is focused and delivering and we are doing so as we strategically position ourselves for the future. With those updates over the way I would like to call the 2013, Annual Shareholder Meeting to order. I will be serving as the Chair the meeting and Brad Smith will be serving as Secretary.

Now I am going to ask Brad report on the notice of the meeting and the proxies received.

Brad Smith - Executive Vice President and General Counsel

Thanks Amy. The notice of the meeting and a notice of internet availability of proxy materials were mailed by Broadridge Corporation beginning on October 7, 2013 to all shareholders of record as of September 13, 2013. And as a result, the meeting is being held pursuant to proper notice. Proxies representing more than 83% out of the approximately 8.4 billion shares of the company’s stock eligible to vote have been received, and accordingly, a quorum is present and the meeting is duly constituted and should proceed.

Amy Hood - Executive Vice President and Chief Financial Officer

As Chair of the meeting, I have adopted an agenda that will govern the order of business at this meeting and the rules of conduct of the meeting. Copies of the agenda and the rules are available at the reception table outside the meeting room. The rules of conduct will also govern the Q&A session that will follow the adjournment of the meeting proper. We now come to the part of the meeting where shareholders consider the matters set forth in the proxy statement. Voting on all matters is by actual count of the votes cast in person or by proxy at the meeting. The first item of business is the election of Directors. The following nine people have been properly nominated by the board: Steven A. Ballmer, William H. Gates III, Dina Dublon, Dr. Maria Klawe, Stephen J. Luczo, David F. Marquardt, Charles H. Noski, Dr. Helmut Panke, and John W. Thompson. The Board recommends a vote for each of the Directors on the ballot.

The second item of business is a vote to approve material terms of the performance criteria under the executive officer incentive plan. This proposal is discussed in the company’s proxy statement. The Board recommends approval of the proposal.

The third item of business is an advisory vote on executive compensation, the say on pay resolution. The secretary will read the resolution.

Brad Smith - Executive Vice President and General Counsel

Resolve that the shareholders approve, in a nonbinding vote, the compensation of the company’s named executive officers as disclosed in Part 4 of the company’s proxy statement.

Amy Hood - Executive Vice President and Chief Financial Officer

The board recommends approval of that proposal. The fourth item of business is the ratification of the company’s independent auditor, Deloitte and Touche, LLP for fiscal year 2014. This proposal is discussed in the company’s proxy statement. The board recommends approval of that proposal. The discussion of matters for shareholder consideration is now closed. Please be advised that the polls are also now closed. At this point, the voting tabulation has been completed and we will report the preliminary results of the matters voted upon today. Proposal one is the election of directors. As provided by the majority vote standard in our bylaws, a director or candidate must receive a majority of votes cast in order to be elected. Brad, please report the vote.

Brad Smith - Executive Vice President and General Counsel

The following nine persons have received the majority of votes cast, each with votes in excess of 90% of the votes cast. Steven A. Ballmer, Dina Dublon, William H. Gates III, Dr. Maria Klawe, Stephen J. Luczo, David F. Marquardt, Charles H. Noski, Dr. Helmut Panke, and John W. Thompson. The nine nominees are elected directors to serve until the next Annual Meeting of Shareholders and until their successors are elected and qualified.

Amy Hood - Executive Vice President and Chief Financial Officer

Proposal number two is the vote to approve material terms of the performance criteria under the Executive Officer Incentive Plan.

Brad Smith - Executive Vice President and General Counsel

The proposal has received affirmative votes representing more than 97% of the votes cast.

Amy Hood - Executive Vice President and Chief Financial Officer

Thank you, Brad. The proposal is approved. Proposal number three is the advisory vote on executive compensation.

Brad Smith - Executive Vice President and General Counsel

The proposal has received affirmative votes representing more than 95% of the votes cast.

Amy Hood - Executive Vice President and Chief Financial Officer

Thank you, Brad. The proposal is approved. Proposal number four is the ratification of the company’s independent auditors for the current fiscal year. The proposal requires the affirmative vote of our majority of shares voting on this matter. Brad, please report the vote.

Brad Smith - Executive Vice President and General Counsel

The proposal has received affirmative votes representing more than 98% of the votes cast.

Amy Hood - Executive Vice President and Chief Financial Officer

Thank you, Brad. The proposal was approved. We expect to post the details of final voting results on these matters on our Investor Relations website by tomorrow and will also report the results in a Form 8-K filed with the Securities and Exchange Commission within four business days. We have completed the business of the meeting and our shareholder meeting is now adjourned.

With that, let me hand the stage over to our Chief Executive Officer, Steve Ballmer. As you know, Steve announced his retirement in August and will be leaving Microsoft sometime in the next several months. I am incredibly thankful for the opportunity to have worked with Steve. And with that, please welcome Steve Ballmer.

Steve Ballmer - Chief Executive Officer

Well, thanks everybody very much for coming today and thank you very much for your investment in Microsoft, a company that we all share passionate interest in. This is a unique meeting, fun meeting. And hopefully from the demonstration Ryan did, you can get a sense of some of the exciting things that have been going on.

It’s certainly been a pivotal year for Microsoft. We delivered strong financial results. And as you heard from Amy, we are off to a strong start this financial year. We also advanced our family of devices and services and I really do think Ryan showed just how spectacular our family is becoming, one experience on every device for everything in your life. We are doing great work with our partners across all of the screens that are important in you life from phone to tablet to phablet to PC to TV to wallboard. But we are certainly very, very hungry to do much more.

Last year at this meeting, I talked about the fundamental shift underway at Microsoft from a company that expresses its software creativity directly in software to a company that expresses its creativity in software through a family of devices and services. Our leadership team and the Board of Directors have spent a lot of time over the past year working on this strategy and honing a differentiated point of view in terms of the high-value experiences that we really can bring to life that make people more productive, that make businesses more productive and that make people who really want to have fun be able to do it in unique ways.

To that end in July, we announced a sharpened strategy and a far-reaching – really, a very far-reaching realignment of how Microsoft operates. We are focusing today on this family of high value activities, implemented and delivered through devices and services for individuals and businesses around the globe, empowering people at home, at work, and on the go.

A key part of this strategy is this focus on what we call high-value activities. Think about the things that matter most in a person’s life. And I will admit, it’s different for everybody and one person’s truly important thing may not matter to somebody else, but the questions we ask ourselves are what do people really need, what is most valuable to them? Everybody who works whether it’s in the home or at a large enterprise or at a not-for-profit, everybody who works has a real need to be productive. My wife and I would say having a face-to-face conversation with our sons when they are miles apart is really valuable. And for many people, Skyping and bringing their world closer together is of incredible value. Unfortunately, sometimes what my sons would say is high value is going down and beating the game in Xbox and I am sure we’ll lose my 14-year-old for the better part of the next weekend. Is it high value? I don’t know, but he works really hard at it, therefore, must be important to him.

At other points in time, I know, not just hope, that my sons would say, hey, look, we really need to have the technology that lets us do the research for this important project that we have in our schoolwork. Small business owners certainly say that connecting with their customers, attracting new customers, gaining unique insights into their customers from the ever growing world of data is a high-value activity. And as I said at the beginning, any professional, but certainly professionals who spend a lot of time, for example, in meetings with colleagues in the room and around the world would say that the ability to collaborate digitally to share information is an incredible high-value activity.

The real point here is that Microsoft will focus in on a set smaller than 100 and more than one or two, but a set of high-value activities to both individuals and to businesses to people as people, to IT professionals who are trying to deliver value and we will offer a family of services, of devices, devices built by Microsoft as well as devices built by our partners to help people really realize the most important experiences in their life. We clearly have big upside opportunity in devices. Just take a look at Xbox One, which is launching in a few days. No other company could have delivered what we are delivering with Xbox One. It is a reflection of what’s possible.

When the company, our company is unified under a common vision, it brings together hardware and software. It brings together these services, machine learning services through Bing that understands you and who you are and learns about you. It runs at a scale that people think about as large, because we serve millions of consumers to deliver unmatched gaming and entertainment experiences. New Windows devices of all sizes are also hitting the shelves for this holiday season. Earlier, you saw some of the amazing new Windows 8.1 tablets, two-in-ones and all-in-ones, including the Surface 2 and the Surface Pro 2. Those are devices that I would tell you deliver the best productivity experiences, the most productive tablets on the planet. If you want to work and live, there is no better product for you than one of our two Surface products.

We have strong momentum with Windows phones. The Nokia Lumia 1020 delivers category-defining innovation with the 41-megapixel camera, and the newest device that Ryan showed you earlier, the Lumia 1520 and the 1320 will challenge any device in this so-called phablet, that’s a phone/tablet by the way phablet category. So from the smaller screens to the largest ones, we are in the game. We are accelerating our participation. A significant part of our approach to device success is differentiating with the software that delivers these high-value experiences. Consumer services, productivity services, including Bing, Skype, SkyDrive and of course our Office 365 product.

Make a Skype call to your grandkids from your living room on an Xbox One or show a family slide show to your friends with the photos and videos that you have stored in SkyDrive. Bing is another important example and fundamental to our strategy. We are growing share, and we are also enabling new scenarios. With the Bing Smart Search that we have built into Windows 8.1, you can find anything that you are looking for, whether it’s on the Web, on your device, or stored out in SkyDrive. These advancements all reflect our investment in and focus on big data, machine learning, and serving individual customers around the world with the capabilities that were built up as part of Bing.

We are also delivering new capabilities through Office as a cloud service with Office 365. You can access photos, notes, documents across devices. I have grown to really love being paperless. I love not having to schlep everything around. My whole life is either on this device or accessible the device. Anything I want to create, boom, I can do it on this device. My briefing materials, my speech are on my tablet. My digital hand-written notes, I just sit up here, I left my pen over there sit and – 97% was the tally that Brad said. Boom, it’s right there, available to me, roamed through SkyDrive, and forever available. I can also read and access these things on my phone where I basically need to have things in my pocket on the go. All of these consumer services differentiate our devices. They can generate revenue through subscriptions, particularly with our enterprise customers and advertising, particularly with Bing. And in general, feed the incredible enterprise capabilities that we have as a company.

We also learned from running our consumer services at scale. And we can apply those learnings to what we are doing in the enterprise. That’s why we like to tell our customers that Windows Azure, our Windows cloud service, is battle tested. Its battle tested because it builds on the same foundation as Outlook.com and Bing and all of the other technology that we built for these high-scale consumer services. Our consumer services make our enterprise services stronger. And our enterprise services have proven or should prove to be again the major revenue and contribution margin driver that they have been in the software world. Customers tell us that we are helping them solve their biggest challenges as enterprises, managing securely a growing number of devices, harnessing the big data that they have as companies, embracing new social networking scenarios, and choosing the right cloud solution. Helping customers to move to the cloud, our business customers move to the cloud on their terms, remains one of the single biggest opportunities available to this company.

To be the leader in the next era of enterprise cloud, a company will have to do three things well. First is to offer best-in-class, first-party application of its own. In the industry, we call that software as a service. And Office 365 is the flagship for us in that dimension and becomes sort of the major driver of where we are going. Second, you have got to be able to operate a public cloud at massive global scale, which is certainly not easy, nor is it inexpensive from a capital investment standpoint. And third, we have to deliver true what we call hybrid cloud capabilities that allow our customers to balance between what they run in their own datacenters and the ability to move those things to the Microsoft cloud.

I don’t think anybody is going to succeed doing just one of those things. You have to do all three and our company is making incredible progress in all three of those significant areas. Customers are flocking through our first-party cloud applications, especially Office 365, but also Yammer and our Dynamics CRM offer. In fact last quarter our commercial cloud services revenue grew more than 100% year-over-year. We are delivering at scale a public cloud platform in Windows Azure. Windows Azure continues to accelerate at an amazing pace in the enterprise with more than a thousand customers signing up every day, a thousand enterprise customers signing up every day.

We are delivering true hybrid cloud capabilities today with our Windows Server, System Center, Hyper-V, and Windows Intune offerings. We are the only provider, bar none that is delivering in all three of those key areas. None of our competition is. So I would say we are building a real and important differentiated position in the market today. And I saw Kevin Turner, our Chief Operating Officer, here today. Certainly, our field teams working with our customers are just seeing amazing surge of interests in our cloud services.

To deliver better products faster, we are taking significant steps forward in executing on our strategy. The realignment of the company that we announced in July is underway. We have moved and are now consolidating from a collection of business groups to an organization that’s aligned by function. We are operating with a single strategy and starting to work as a single team towards a common shared set of goals high value activities, expressed through devices and services. In September we announced our intention to purchase Nokia’s devices and services business. This is really a signature moment in the transformation of the company and will bring together the best mobile device work from Microsoft and Nokia.

The deal will really accelerate our position in phones, strengthening our share, strengthening not only the ecosystem for Windows Phones but also Windows tablets and Windows PCs, and is an important economic opportunity for the company. As we sit here today, the Nokia shareholders have gathered and they will vote today on accepting this deal. We have to go through that process, and then we are expected to close the deal on the first quarter of calendar year 2014, still pending appropriate regulatory approval.

Clearly, there is a tremendous, tremendous amount of opportunity ahead for Microsoft. Our industry is in a period, as Bill said of incredible innovation. And Microsoft is uniquely positioned to drive and define the next big thing. We have had incredible success, and people don’t always remember that we built Microsoft one business at a time, one product, one market, one customer, one by one, individual initiatives. We made big, bold bets. We made a bet upfront on being in the software business, a bet on graphics user interface and productivity. And then in the last 24 years just an incredible bet on being an enterprise IT supplier.

Today we are also making big, bold bets. There is no way for this company to succeed unless it is willing to bet. And we are betting on enabling high value activities, it’s easy to focus in actually on the things that are simple and casual. We are betting on amazing cloud services, which require real invention and innovation to propagate. And we are betting on our ability to conceive and drive the future, the next generation of what important devices look like and deliver those to the market.

We have driven phenomenal results over the past decade with more than $200 billion of operating profit. As the CEO of Microsoft and personally as an investor in Microsoft, I am optimistic. I treasure my Microsoft stock as I know everybody in this room does. I am confident that we have the right strategy in place. We have the financial assets that allow us to take the risks, the bold bets to invest in new areas that will lead to transformation of how people work and live and economic success for Microsoft. And we do all that on a foundation of world class people, world class talent, who will drive this next generation of world changing technology. There is no question for me that when we look back 10 years from now, we are going to say, wow, I can’t believe how primitive technology was. Wow, I can’t believe how great a company Microsoft has become in running global cloud services and delivering the next generation of innovative hardware devices and experiences. And we will look back and say hey, weren’t we a small company back there in 2013.

Thank you very much for your support and we will look forward to your questions.

Chris Suh - General Manager, Investor Relations

Thank you, Steve. We will now proceed to the Q&A session. An Investor Relations team member is in each aisle with a microphone. We will take as many questions from you as possible as time allows. In order to maximize the opportunity to address as many questions as possible, please do limit your time to one minute and one question of interest to all shareholders, so we can take as many as possible. We also solicited questions via e-mail on our Investor Relations website. So those who cannot attend in person can also ask a question. We will be addressing several of those questions submitted electronically and for those submitted, but not answered as part of today’s meeting, we will reply to you directly via e-mail.

Earnings Call Part 2: