Microsoft: Dynamic Company, Dynamic Innovation, Optimistic Future
Financial Analyst Meeting 2004
July 29, 2004

ANNOUNCER: Ladies and gentlemen, please welcome Chief Executive Officer, Steve Ballmer. (Applause.)

STEVE BALLMER: Part of the new Microsoft is kind of this gentle walk-in music we've been playing all day.

It's a real honor and privilege for me to have a chance to be here with you today, I have to say. I think it's the first analyst meeting I've been super pumped up for basically since I became CEO. And I was trying to think why is that, why this meeting, why are you so fired up? And I said, well, I became CEO, some people may remember, in 2000, kind of the peak of the dot-com bubble, blah, blah, blah, we went through that and we were busy transitioning and retooling the way we worked, and I'd get up here and I'd talk about internal stuff and blah, blah, blah, and it just wasn't really all that—Open Source, blah, blah, blah, everything changed. We weren't really talking kind of about—I at least—wasn't getting up here and giving speeches about stuff that I kind of really wanted to talk to you about.

And I just feel like today is a very different day, it's a very different day.

We had an amazing blow-out fiscal year '04, stunningly great fiscal year '04. Somehow that seemed to get lost after we reported the fourth quarter, I don't know why, but we had an unbelievable fiscal year '04 and I'm pretty excited about that, and that was great. And I've been sitting kind of in one of these little rooms nearby watching our people get up here and show all the products and the demos and, man, I'll tell you, this pipe is full. The kinds of work we're doing, we're doing fantastic stuff.

And so today I get to get up in that environment and talk to you about what I think is an incredible outlook for our company. There's risks, I'll highlight them, we always do, we'll never let you down on highlighting risks. But I just see incredible opportunity for a dynamic, exciting company like Microsoft in the world in which we live.

And so I'm pumped up today in a way I haven't been, frankly, as I come to speak at these analyst meetings over the last several years.

Frankly, the other thing that never pumps me up is speaking in this particular room. I don't know how it feels to you but it's got some of the weirdest acoustics of all time and if we weren't on a cost efficacy kick, we'd redesign this room, I guarantee it, and somehow it would feel more like we were all part of the same meeting instead of like I'm sort of in a Broadway play and you're all critics ready to review us. But that will have to wait until we're a little bit fatter and richer—(laughter)—and can afford, if not to show cost efficacy going forward.

So I want to talk a little bit about my optimism about the future of our company and why I think very, very much that this place is one of the greatest places around and certainly one of the most dynamic companies that you could hope to participate in as investors.

I'm going to talk about five things. I want to talk about people, because I think that one of the key ways you have to think about us is through the lens of talent. I want to talk about talent and what we're doing with our talent and why I'm excited about the future.

I want to talk about driving customer satisfaction, because this has been a real focal point for us over the last five, six years where I think we've built real muscle in terms of our ability to be responsive and customer-focused.

I want to talk about competition and how we compete, and how we continue to compete, despite all of the work that we've done—appropriate work—to mend fences with some of our erstwhile competitors. We're still going to be very, very focused in on winning in the marketplace. And then, of course, I want to talk about the two pillars of innovation and the growth that it can drive.

If you're taking a long-term view of the company, I had lunch yesterday with 11 people who started working for Microsoft a year ago in marketing, and I wanted to meet some of our top young folks, pretty right out of school. The team in the room told me everybody in the room was between 22 and there was one oldster, he said, he was 30. And one guy said, "Steve, you've talked a little bit about where the company might be three, four years from now, but where are we going to be 13 years from now? How should we think about the company that's probably the company where we get a chance to be real leaders?" This was a kid literally right out of undergraduate school.

And the key thing I told him was, look, we're going to make some bets and you'd better hope we're making good strategic bets, but the real issue is 13 years from now is this the company that is doing innovative work, that has the talent around it that allows it to create new opportunities and seize on all important opportunities that the market and other innovations in the market permit? That's the best you're making for your career 13 years from now. You're betting that this is a company that has capability: a capability to innovate itself, in its products, and that's the long-term bet. It's not "Longhorn," it's not speech; these are all important things, but what you're really betting on is do we have that capability? And that capability is probably best assessed through this lens of talent.

And I'll tell you, we're having just a phenomenal run, a phenomenal run from a people perspective. Recruiting, I told you a little bit about this luncheon I had, but then I went out and talked to about 600 of our college interns and about 400 new recruits who are just starting for us out of college. We had a banner college recruiting season, probably our best ever. And if you take a look at it over the years, really we're the only guys who really compete year in and year out for the top talent coming out of university. I absolutely believe that.

IBM, we beat them I think 75 or 80 percent of the time somebody has an offer from both companies they take ours, and the only reason we ever lose anybody is geography. IBM is physically in more geographic locations.

This year Google I think they hired a total of 10 people who had dual offers but over 50 percent of the people who had dual offers took our offer.

Oracle, they were big college recruiters for a while, then they phased out, at least amongst the kind of top talent that we're looking for.

And occasionally Trilogy or some other little startup will pop in, go out, but year in and year out it's amazing the talent we get.

Twenty-five percent of our current vice presidents are folks who joined us right out of school, and I continue to just be amazed and impressed by the range of people that we're able to bring in through the college and MBA recruiting process.

Industry hires from established companies: IBM, Borland, Novell; we've brought in top talent from all of those companies this year.

Startups, smaller companies, others: Those people were able to recruit and bring in people who have tried in some other environment and now want to come join us and we've recruited top talent from there.

We tap into the talent pool of the world. The two biggest countries today in terms of computer science graduates are China and India and the United States is third, and it's very important that we tap into the talent of the world. Some of that comes in the fact that we've got development laboratories in Beijing and in Hyderabad in India and some of it just comes because we recruit worldwide. We've got over 100 people from Bulgaria doing software development in Microsoft, 100 of the top Bulgarian technical talent. We've got over a thousand Russian speakers on this campus doing software development because we reach out on a global basis. And it doesn't matter where we go, I mean, we're welcome. The Egyptian government has welcomed us into the universities doing recruiting on the theory that some of those folks are going to come back home. So whether it's here or around the world at our other development sites, we're getting amazing, amazing, amazing people.

We were picked this year in a survey of over 14,000 undergraduates as the Number One employer of choice by current college undergrads, and I'm just very enthusiastic about the people that we're able to bring in.

We've gone through what I would call a retooling of the way we work over the last several years. Some of it has been very obvious to you. We formed business group structures with P&Ls, and we are pursuing cost efficacy, a new gene for us to go build up around here, and we've been very busy last year redoing our compensation system, blah, blah, blah; all things that very much affect our ability to get our best work out of the great people who join us.

People don't want to come here to work for some stodgy, old, middle-aged company; people come here to work for a dynamic company, a company that's driving to change the world. You get up in front of these thousand kids that we had out there and they want to know that we're dreaming big, betting big, thinking big. And I'll tell you, it fires me up to have a chance to be in front of guys like that, people like that with the ideas that they have. And we are 100 percent dedicated to keeping this place the kind of place where that kind of talent wants to come and wants to work.

So why have we done some retooling? So that we have a little bit more in the way of process that helps us work with one another. No stodginess, no bureaucracy allowed is what I tell our people, and we'll stamp it out so we can keep moving fast and innovative and quickly in the way that we need to move.

We committed ourselves to improving the talent we have and bringing in new talent and developing talent in some of the functions that have been less, if you will, right in the mainstream of the way you think about us: HR, finance, marketing. I couldn't be more pleased with what we've done to build strong finance functions in every one of our divisions, strong HR functions. And we've really revitalized marketing. I would say in the Eighties people said boy, Microsoft is a great marketing company. People even sort of say that now, and I've said, ah, we've lost a little bit of the old muscle. And I hope during the course of today maybe you see we've gotten back a little bit of the old muscle to tell our story in a way that is compelling, that's built on what's really going on in the world. It's not just kind of random and emotional and blah, blah, blah, but really builds upon the things that are most important to our customers.

Our attrition is low. We've got less than 3 percent unwanted attrition, which I think is phenomenal. We have much higher overall attrition because we're working harder on what we call good attrition; that is, really working out weaker performers.

We promoted ten people this year internally to vice president; we hired three fantastic people from outside Microsoft: a senior person from Starbucks, a senior person from Motorola and a Microsoft returnee who had been running a startup for a number of years. And we've had some good attrition at the vice president ranks.

I'm frankly a little bit dismayed from time to time to read articles about how it's hard for us to keep talent at the top. We've been working on our talent at the top, and if a number of the people who maybe you get to know aren't with us anymore, they're not here for good reasons. So we've been trying very hard not only to develop and to promote but also even at the top levels to make sure we absolutely have the best-in-class people both at galvanizing innovation but probably even more importantly to put together our people in the strongest way to make great things happen.

So I feel like from a people and environment perspective—hey, you've always got to work it, you've always got to keep the climate fresh, you've got to remind people about the opportunities—but I feel like we are in great shape relative to having the intellectual horsepower and people capacity to go get done what it's going to take to get done to power the future of this company.

We set out on a real campaign in 1998—that was when we started—to drive customer satisfaction. And frankly I remember the speech I gave to our employees in 1998, it was kind of a Doctor Doom, Doctor Downer speech, “We've got problems, trouble in River City, we've got to get better at this.” And frankly we didn't get much better for the first couple of years. We didn't know exactly what to do, where to turn, how to work. And over the last three or four years we've built the approaches and the tools that are allowing us to really drive and improve customer satisfaction.

We implemented a new partner program, announced it about a year ago, it's been in implementation, to try to better support our partners. Resounding critical acclaim at this year's Partner Conference that I had a chance to attend in Toronto a couple of weeks ago.

We've increased our presence working with small and particularly midmarket customers, and I've seen a dramatic improvement there, at least anecdotally, and I think we'll see even more improvement in our connection with those customers. Kevin talked about public sector. We've been out, because of the security issues that are so very on the minds of our customers, not only have we been working technically but we've been working very hard to try to train and educate IT professionals on how to best manage the security of their environments. We touched over 500,000 people in the last six months, essentially starting from nowhere, building a program, getting out and touching these folks in about a six- to eight-month period of time.

We're using the Watson tool that Steven Sinofsky had a chance to talk to you about to really improve our customer responsiveness. The degree to which this thing is a real breakthrough in the way software quality will improve is stunning to us, and frankly I don't think the story has really been told even to the people I want to tell it to.

I was talking to the CEO of one of our ISV partners and I said, “Do you guys have your Watson program in place?” And he kind of looked at me vacantly and I said, “Yeah, you know, we're talking about the Number One tool to improve responsiveness, customer satisfaction, quality in software that we've seen in 10 years.” And he said, “I hadn't heard about it yet.” So we're pushing, and in our case it really now is shaping a lot of how we tell our developers what it means to be responsive: watch, understand what problems people are having statistically, and go work on it.

We've expanded on the nonproduct side our Customer Response Management system, opened it up to our partners as well so we have essentially the same kind of listening tools on the nonproduct side that Watson gives us on the product side. All of this has required a level of investment, but I'm very excited about the progress that we've made.

Winning customers: I've talked a lot over the last several years about the need for us to be a responsible leader for our industry. I'm going to be consistent with that. But I think us being a relentless competitor is consistent with responsible leadership. We're going to be open with our competitors. We're going to work with them, we're going to support them, we're going to honor our commitments to them, but at the same time we're not going to shy away from getting into new areas, if we think it makes sense. We're not going to shy away from working relentlessly to improve our products when it makes sense. We're not going to shy away from trying to provide the best value at the best price. We're not going to shy away from telling our story.

Whether it's Oracle or Sony or Linux as Kevin talked to you about earlier today—I love that speech, by the way—Nokia, Sun, IBM, Apple, Open Office. Sun—I should have stopped there—our new friends at Sun. (Laughter.) No, I mean that seriously. Actually, I talk to Scott now pretty regularly. We both know what we've done. We're agreeing to continue to compete, that's part of the way life works, and we're agreeing to cooperate in a new way. And that's fine.

Google: A lot of Google fascination, we're pretty fascinated because we're going to compete. And as I think Yusuf had a chance to really drill on, we're going to compete very, very, very hard and with the kind of persistence and tenacity that I think people expect from this company.

SAP: We had our discussion with SAP. We're not focused in on enterprise applications. But to the degree that SAP wants to come down and compete for small and midmarket customers, it's kind of like they say in basketball, not in our house. We are the small and midmarket application company, and we are really going to compete to the fullest abilities of every soul at Microsoft to make sure that that's a market in which we're strong. So in a sense what I would say is we're going to lead, we're going to be open, we're going to be respectful, but we will compete. We will compete. And I hope you got a sense of that essentially across all of the presentations today, whether it's Pieter Knook and the competition with Rim or the competition that Bryan Lee talked about with Sony or any of the other things that came up over the course of the dialogue today.

This slide is probably too busy but John put up a slide a year ago that basically went business by business, talked about what we were committed to over the next year, and what I did is I added a little bit to really focus in on the product innovations, the product breakthroughs, the advances, the technologies, and what did we do, what kind of results did we get.

Media Center version 2 shipped; Media Center licenses are up 400 percent, there's still a lot of runway.

New watches: still working hard, new watch manufacturers that we're partnering with and people can expect us to show our usual persistence and tenacity, even if we still have some work to do to prime the pump.

Tablet: We had a chance to show you some of the new Tablet technologies. Tablet is an idea that we are 100 percent sure is right. We haven't gotten all the right formulae, hardware, software, to propel it be 100 percent yet of the notebook market. Bbut you can count on it, I think, because the proposition is the right proposition, and we're just going to have to keep working on it and improving it the way we showed you.

Server and Tools: We launched a new version of Exchange, very important for a number of scenarios, with Outlook, with mobile devices. Exchange seats grew 30 percent year on year; innovation, growth.

SBS 2003: Fantastic product, actually probably my favorite product of all because it's just this beautiful, nice synthesis that customers spark to when they see it. SBS units doubled in the year; innovation drives growth.

We launched the new Office System 2003. We're off to two times faster start with Office 2003 than we were with Office XP. Still a lot of work to do, a lot to do to drive deployment and usage but it is a fantastic, fantastic success; innovation drives usage.

CRM: New version, still early for us. Doug talked about the roadmap but we doubled.

Windows Mobile: We're getting now what we really need to see, which is strong adoption from the operators and strong adoption from the manufacturers. And I feel very, very good that with the ramp we saw last year in unit volumes and the ramp I hope we'll see this year, that we should be able to have the Number One device in the market within the next year or so for mobile information workers. It may take a year, may take 18 months, but I think we have some real fantastic devices. And we really see unit volume ramping tremendously for the Windows Mobile phones, the Windows Mobile Pocket PCs and we're going to drive that hard.

MSN: We had our first profitable year, but it was driven on innovations that we've invested in—new communications services, new information services, improvements to Messenger and Hotmail, new advertising and publishing platform, ad revenue up 40 percent, and real rises in unique users for both IM for Messenger and Hotmail.

Xbox: Not much new in terms of the console itself but Xbox Live, new games, interesting games, now new games coming from Electronic Arts and others that will really drive interest in our online gaming platform. We have over 400 games, Halo 2 on the way; so innovations driving growth, innovations driving growth.

Somebody asked me at lunch, and John talked about the dry hole theory. I think it is interesting to take a look at which software companies are willing to make big bets and who's not. If somebody is not willing to make new, big bets, where do you think their growth is going to come from?

We're going to keep driving our current businesses, and we're going to grow from our current businesses, but we don't just sit here and say that the only key to our growth is the businesses that you've known and loved for years. We've got to push, push, push, push, push, push, push to continue to broaden out our portfolio.

And in a sense rather than people say don't make these investments, I think you should be pushing us to say, what's the next emerging business you want to invest in, come on, come on, grow that one, get into something, push, push hard. Because I think that's what it takes and that's what a successful software company—the kind I talked to that marketing undergrad—we'll want to be and do over the next 13 years.

In addition to the work we're doing in security and customer connection, we went through a long list of innovations today: XP SP2, new Tablet software, new Media Player, media enhancements, Music Service, 64-bit version of Windows, new development platform, SQL and Visual Studio, new management platform, System Center 2005, new Speech Server, new spam and edge services for Exchange; this is all stuff in the next 12 months—new templates and accelerators for Office 2003 and SharePoint, very important. Office now has with SharePoint this nice extensibility mechanism where we can be adding new value through templates and innovation every day as opposed to just at big release timeframes. New business intelligence and reporting services between SQL and Office, improvements to our collaboration portal and new real-time collaboration technologies, significant ERP releases, new version of Windows Mobile, the Portable Media Center, which we talked about, new search, which I know Yusuf, at least he got some applause, I was pretty darn excited about his demo. Music Services, the new Windows Marketplace, which I think is important. Today it is still too hard for customers to find the products and services that they want to use on the PC, and in some senses somebody's got to help this information be more available and accessible; we're working on that. New communication services that we'll see as part of the next wave of MSN.

There's no new Xbox in the next year, but, man, are we hard at work on that next Xbox; that's all we'll say. New Xbox Live creativity, Halo 2, and again innovation fuels growth. Innovation fuels growth. It's about as simple as that. People fuel innovation, innovation fuels growth and customer satisfaction, driving that hard, make sure that the wheel can come around and around and around and around and around.

So that's kind of how I think about this stuff.

People asked a little bit and I've talked a little bit about it but maybe I'll add, how do we think about innovation. Well, in sense all I think about, all Bill thinks about, is how do we accelerate the pace of our innovation? How do we make sure we're investing enough at the right time? How do we make sure that we're improving the way we do engineering and testing to reduce time to market and give us agility? How do we make sure we get the benefits of things working together, because customers really do like things to work together, but it's harder actually to make things work together than it is to have them not work together. So how do we reduce the time and the complexity and internal processes so that we can get more integrated innovation in the market.

How do we make sure that we recognize when we can build from existing sales capacity to take new innovation to market? When do we need to build new capacity? What are the new areas? Are we making bold, creative bets?

I tell our folks there's three things to think about in terms of new innovation: First, are you first in the marketplace? You always want to be first in the marketplace. Don't let anybody confuse—well, maybe some guys have different strategies. These guys who say they're fast followers? We don't want to be a fast follower. If we're not first, we'll be a fast follower, but the goal is not to be a fast follower. The goal is to be first, and that's a good thing.

You want to be the first guy to be cool, too. Sometimes you can be the first guy, and you're not the first guy to be considered cool by the market at large. So, you actually don't only want to be first, but first to cool. Sometimes we've been first, and we get picked on, when somebody else is recognized as kind of hot and innovative, but when we did the stuff first. And something in our synthesis wasn't quite there, and they got considered cool in an area before we did. So you want to be first to cool. But if you're not going to be first to cool, don't get scared away. Be first to be super cool.

Third, you really want to be the first guy to make a lot of money. And maybe for our investors this is the most important thing of all, but it's cheaper to make money if you're first. First to cool, then it's easier to be the first guy to make a lot of money. We tell our people if, for whatever reason, shame on us if we're not first or first to cool, we darned well better be right in there with the rest of them, or ahead on first to make money, real money. And we certainly better be the one making the most money at the end of the day. We have to push ourselves in that regard. We can't stop until we get there. So, innovation starts to bootstrap, be first, be first to cool, be first to make money, and be the guy who is making the most money when the market dynamics settle out.

And we're going to make the innovation bets. We're going to hit, I think, most of them right. There may be some things we don't hit, where we're not first, anyway, and when we're not first you can count on us to continue to push ourselves to find innovation to extend whatever it was that the guy who was first to cool did so we absolutely continue to have the best available offer in the marketplace at that time. So, that's kind of the philosophy. Be first. But if you're not first, run extra, extra hard and make sure you're still in the game. And be tenacious. Stick with this stuff. Most companies give up on their innovation, I think, far too soon, before they ever have a chance to really pay out.

So, how should you measure the success of this company? Everybody, I guess, sort of does. I'm not talking about how do you check our health. I talked about this one year. I said, here are the leading-edge indicators for you to study. Now, I'm really talking about what is a good performance for this company. And I'll say a few things.

Number One, you have to judge—because our customers will—the breadth, the depth, and as Bill talked about, the value of our innovations. If our portfolio is not wide enough, if there is significant value being created in an area that we're not investing, that's a problem. That's a breadth problem. If we're not going deep enough and being tenacious enough to win, that's a problem. If we're not being first, that's a problem. And you really have to be asking yourselves every day, and that's why we have sessions like we did today, are we working hard to have the kind of portfolio, broad, deep, and valuable innovations? Are we getting the talent so that, as the person asked me, 13 years from now, this will be a company that can continue to be the dynamic, innovative company that it is today? Are we succeeding in key new areas? But for us to have the kind of future you expect and want for us, and we expect and want for ourselves, we're going to have to be in new areas. And we've got to be in new areas, hopefully first, but as I said if not first, we've got to be first to make money. So, you should be looking not only at how is Windows doing, which is very important, but you also ought to ask, are we getting involved in new technology areas where they wind up integrated into another Microsoft product, or they take us down and we build a whole new business with a whole new revenue stream. It's important that we succeed in key new software areas.

Mark my words, on this—as close as I can make to a promise, because I don't make promises, that's inconsistent with this meeting—we will outgrow others in our business in profit, and when I say our business, that's the business of adding value through software. We will. The question which a lot of you ask—and it's appropriate, so now I'm talking about a risk factor—the question which a lot of you ask is, will software be a business that generates a lot of profit in the future, or will it not? That really is big question people ask us when they talk about open source. Is open source essentially a disruption that will cause the software business in general to be less profitable 10 years from now than it is today?

I believe if we do our job right, if we innovate in the right way, if we do all the kinds of things that Bill and Kevin talked about, the kind of work that commercial software companies do, will be a source of additional profit and value and job creation. But, hey, people are allowed to have opinions and to study that, and to think about it. I think Kevin did a great job of outlining why we think our innovations bring value. I think Bill did a great job of outlining the importance of innovation. And so we believe in it. But that's the question. If you ask me, do you think you're going to outgrow the rest of the guys on whatever that base is, on that point, I feel very, very confident. It doesn't mean we'll outgrow every individual competitor individually. We may outgrow them in their business. But in aggregate, we are still who we are in aggregate. But we will outgrow our industry. I think that is an important benchmark for us, and certainly something that you ought to be using as a measure of our success.

Our growth should be balanced. I do believe that if you take kind of a four-year perspective—and why four? because four is longer than we ever do any internal planning cycle, three is kind of our internal planning cycle, and four is all SteveB random estimates and analysis. Not random, but thoughtful, shall we say. There's no forecast process that I'm relating to, I'm just giving you kind of my rough view and expectation. I think over the next four years, growth in profits, maybe 40 percent would somehow come from what you think of as our desktop business, Windows and Office. Maybe 30 percent would come from our server business, and maybe 40 percent of the growth, the delta, not the absolute value, but the growth would come from what we now, I guess what John is going to stop calling from now on, but what we have called our emerging businesses, MSN, MBS, MED, and HED. And I think we'll have negative 10 percent profit growth coming from a big new investment area or areas. Some of you will say, well, what are they? To which I'll say, I don't know! But I'm going to be prepared to make sure we have in our plans, in our budget, and our investment profile enough money to go fund the next set of great new business ideas that Bill, and the bright and innovative technical people around here come up with. So, I think our growth is likely to be balanced. When I think about our company in terms of growth, I think about operating income. Operating income. I'm always confused when financial people look at investment income. I can tell you what our investment portfolio is worth. It is worth dollar for dollar what shows on the balance sheet. If we have $40 billion in cash, what is it worth? Forty billion dollars. It's not worth 35. It's not worth 45. It's worth 40. That's an amazing factoid.

If we own so much Comcast stock, what's it worth? Exactly what's quoted on that day. So, it's sort of interesting to me that people get all jumbled up in invested income. I mean, it's important that we manage prudently, and John tried to tell you, we manage that prudently. And, of course, when you write a check for $30 billion, it does change. You make less investment income when you don't have 30 billion, you have 30 billion less. Okay, but that's not all that hard to value. You value it dollar for dollar for what's on the balance sheet, or you ask more questions about whether the balance sheet is accurately representing what's there.

So, let's talk about what really matters, operating income. And operating income probably has just two or three funny things that we've got to clear up before I talk about it. Operating income has legal settlements; they have been more regular than I would have liked, and I hope they become much less regular. It's hard to say they're one-time because we're in a business that has ongoing legal costs. On the other hand, I think we can say we've come out of a period in which we've now put our biggest legal issues, as they say, in the rearview mirror, which means financially I think it's probably safe to say let's back out what people think about as these extraordinary legal costs.

We did have this year two interesting things on the operating expense side. One was our option transfer program, which was a one-time event. So, I backed that out of my thinking. And then you have stock option expensing, and we have the addition of our stock award program that we instituted a year ago. And from now on, as I think John talked about, we shouldn't even break that stuff out, just add it together, and view it all as part of operating income, and stock option expenses are going to come down, and stock award expenses are going to come up, because we gave our employees a fair deal. That's what's going to happen. And you just look at that whole and say, what's the operating income?

So, with option transfer program out, and legal out, and putting investment income aside, we made about $13.8 billion, $13.8 billion pretax operating income in the past 12 months, in the fiscal year that just ended. People say, well, what's a decent growth rate? Well, what is a decent growth rate? I have no clue. I'm not actually very good at thinking about rates. So, I think what's a decent growth amount? You know, should we grow, and let's take four years because I looked at the other things on a four-year basis, in four years, should we grow two billion? five billion? 10 billion? 15 billion? The fact of the matter is, we're talking about very large numbers. How many companies in the world make 13.8 billion?

Three, four, something like that? That's the number. You got CitiGroup, GE, Exxon-Mobile, AIG is below, you've got three or four. And let's say you were to grow this number, what, four billion? How many people make four billion? In the world today there's maybe 40 companies that make 40 billion of operating income, maybe. So what is a good number? Four billion? Five billion? I don't know. I know that when we think about what's possible we think we can do a very, very good job, and a very, very good job over the next four years we might be able to grow a whole Nokia, a whole Siemens, potentially even a whole Intel.

Those are big profit numbers. Now, somebody can go and try to look those up quickly on the Internet, and CAGR it all out, and go figure out what I just said, and I'm sure everybody is going to do that, and that's fine. That's what everybody is paid to do. But, the point I'm trying to make is, no matter what percentage everybody thinks that all translates into, whether it's a small percentage or a big percentage, I'd be awfully darned pleased in the next few years to start up a whole new Nokia, Siemens, or Intel.

I was tempted, I'll admit, I was tempted to write an IBM on here. But, I'll tell you, I think it's out of reach in four years, unless their profits go down, in which case maybe we could do an IBM.

But we may not do this. There is still the question I talked about which is, will software value-add, and the intellectual property that goes into it, will that be a business that continues to deliver the kinds of revenue, and the kinds of profit that it does today? So that caveat is still out there. But as long as we are innovative enough to get past that hurdle, I think there is incredible growth. Growth that should amaze, growth that should impress, growth that will impress me, both as a person who works here and as a person who studies other businesses and other companies.

So I'm excited, not only about the innovation and the people, I'm excited about and optimistic about the financial potential in this business. I'm not silly about the risks. We acknowledge those, we compete with those, we do our best job, we're very keen on that. But I absolutely will tell you, I think there is incredible opportunity in front of our company. I'm optimistic about where we are. I think we've got a dynamic company that's just finished one of the most awesome years. In fact, we grew more operating income in the last 12 months than we have any other year in the company's history.

So I am optimistic about the future. I'm excited to have had a chance to share a little bit of my enthusiasm with you today. And I'll look forward to joining Bill and John in just a minute in the question and answer period.

Thanks, everybody, very much.

END

Due to the varying sound quality and subject matter of tapes, the information in this transcript may contain inaccuracies.