Steve Ballmer and Chris Liddell speaking at Microsoft’s Strategic Update. First half hour, just boring overview of business. Positions everything Microsoft doing as part of “software innovation” (which is part of Microsoft’s problem w/r/t to consumer Internet). A couple of new tidbits about Yahoo: $31 a balance between “very attractive offer” and “ability to create long-term value.” Will take on modest amount of debt (for first time in MSFT history) to fund purchase.
- Shipped Vista Service Pack 1 to manufacturing today.
- Yahoo bid “generous,” hope Yahoo board joins us quickly
- $31 a balance between “clearly attractive offer” and low enough for us to create long-term value.
- Expects double-digit revenue growth (Microsoft core) in FY2009
- Higher investment spending will increase D+A, Ex Yahoo, operating margin should be flat
- Will take on modest amount of debt to fund Yahoo acquisition (rest from cash on hand)
What happens if you’re not successful in Yahoo bid? How get to 40% of ad market? We have robust plan to continue to invest regardless. Yahoo can get us farther, sooner, but will stay on investment path regardless.
Yahoo regulatory issues? Part of reason for high price was speed. Certainty a good thing. Moving into regulatory phase as fast as possible in interest of both parties. Combo of Microsoft + Yahoo makes more competitive marketplace by establishing strong No. 2. That’s the message we’ll communicate. Email domination? Even if put all together still small percentage overall. (True).
Would you consider offering just cash instead of stock/cash? Stock hammered by arb activity. We think good blend, right balance. If look at cash component, $20 billion+. Will fund most from cash holdings, but will borrow for first time. Will be a capital raising. Ballmer: We don’t have big appetite for financial risk. So we will take less financial risk.
“What is Microsoft”
–industry-leading software innovation
–this is our core capability as a company.
–ways software can be applied continue to get broader and broader
We’re now applying software in four different areas. We’re investing for long run.
I’ve read The Innovator’s Dilemma. We get it.
My concept of “long term” is longer than most of yours. I think 7 years ahead. Most of you think 3. But look over last five years–operating income has more than doubled.
Going through long-term growth of divisions. Long-term investments now coming to fruition.
Vista…with SP 1, think we’re at turning point of enterprise cycle.
8 Biggest Opportunities by Gross Margin Dollars:
Each can deliver $750mm or more of contribution margin.
*Windows is biggest opportunity in absolute dollars.
*Corporate desktop (Office, etc.)
*Servers (lots of growth in smaller server markets)
We need to invest.
Discussion of “cloud” platform. “Software plus services.” Arguing that not all cannibalization. (If someone going to cannibalise us, better that it be us. True.)
–“Xbox Live is your secret weapon, Dad”
–Made good progress
–Now have credible search/advertising
–Time to ramp.
Yahoo…let’s us increase momentum
- Expand R&D…need to innovate like crazy
- Operational efficiencies
- Scale economics
We had to do these things anyway, but pleased to make the bid. “A generous one.” We trust Yahoo board will decide to join with us quickly.
Why $31? Wanted to strike a balance between “clearly attractive” and “competitive” and “easy to accept” WITH something that added shareholder value over time. They get benefit first, overall multiple years we can get it.
–$1 billion synergies
–Can access over 1-2 years
–EPS breakeven or better within second full year
Good economics short-term and long-term and is attractive.
Will Private Equity Save Yahoo From Microsoft? Unlikely
Why the Yahoo-Microsoft Deal Will Be a Disaster
Dear Jerry and Steve…Here’s the Answer
Yahoo in Play: Your Handy Guide to the Deal of the Decade
NOW WATCH: Tech Insider videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.