Analysts Eager to Hear Microsoft's Plans for Ballmer, Growth

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It’s the end of July, which means that Microsoft will hold its 2010 Financial Analysts’ Meeting (FAM) — the company’s annual confab for important technology and financial influencers — on Thursday.

One of analysts’ biggest questions, however, is unlikely to be addressed at the event — whether or not Microsoft (NASDAQ: MSFT) will shake up the highest echelons of the company’s management team anytime soon, a move that might help boost the stock’s lethargic performance of late.

As usual, the actual contents of what Microsoft executives will talk about are still under wraps. However, sources have said that what’s traditionally been an excruciatingly long day of technology and financial briefings may be a bit shorter this year.

Certainly the list of analysts’ concerns and questions is probably longer than ever so even with an eye to terseness, Microsoft’s event organizers may not be able to achieve a shorter, less data-packed day.

The meeting attracts many influential stock analysts, but it also serves as a platform for Microsoft executives to explain to both financial and technology analysts where the company is headed in the coming year.

That, in turn, gives IT professionals a preview of what perhaps the single most important IT company on the planet is planning for the near future and how those plans and expected budget allocations will impact their jobs and revenue expectations for the coming year.

FAM, as it’s called, always comes the week after Microsoft announces its year-end financial results.

Microsoft last week announced the best quarter in its history as well as record revenues for the entire 2010 fiscal yearwhich ended June 30.

The company reported record annual revenues of $62.48 billion, a gain of 7 percent over fiscal 2009, with operating income of $24.1 billion and net income of $18.6 billion. Earnings per share for the year came in at $2.10, up 30 percent from last year.

Microsoft’s fourth quarter also broke revenue and earnings records, with $16.04 billion in sales, beating the same quarter of fiscal 2009 by 22 percent. Operating income for the quarter came in at $5.93 billion with net income of $4.52 billion. Diluted EPS for the quarter was $0.51, a 50-percent jump from last year’s fourth quarter.

Microsoft officials have also, in recent years, emphasized how the company is trying to cut costs and become more frugal.

For instance, in 2010, it cut its annual research and development budget for the first time. Instead of going up in fiscal 2010, the budget fell by $296 million to $8.714 billion.

On analysts’ minds, though, will be some of Microsoft’s thorniest challenges in the coming year — including Windows Phone 7, tablet computers, and Apple (NASDAQ: AAPLE), which overtook Microsoft in net worth in May.

Also of concern is Microsoft’s Bing search engine and the adCenter advertising platform as well as the search and online advertising deal the company has forged with Yahoo (NASDAQ: YHOO). In just over a year, Bing has been picking up market share, albeit slowly.

Meanwhile, Microsoft and Yahoo last week announced they have begun testingthe Bing and adCenter technologies as the infrastructure for Yahoo’s sites going forwards. That 10-year deal could make the combined marketing power of the two companies a credible competitor to Google.

Or it could fall flat.

What’s next for cloud business, Ballmer?

Other areas, such as the market for Windows 7 which is going gangbusters — last week the company announced it has sold 175 million licenses since its October consumer debut — will be of interest, too, along with its other cash cows.

For example, Microsoft launched the latest version of its productivity applications suite, Office 2010, in mid-May.

Microsoft also said last week that its servers have been doing exceptionally well. Additionally, Microsoft is bound to discuss its cloud computing initiatives, including Windows Azure.

Though it’s unlikely to come up during the FAM sessions, lurking behind the curtain in analysts’ minds will be the question of whether Steve Ballmer will be relinquishing the CEO’s parking spot any time soon.

Despite a strong showing, Microsoft’s stock remains, and has remained, in the doldrums for years, something that some analysts blame on Ballmer who took the reins in 2000.

Despite Microsoft’s almost predictable practice of turning in record sales and earnings on a regular basis, many stock pickers have seen Microsoft shift from the growth company it was in the 1990s– when the stock price doubled often every couple of years– to something more akin to a slow growth blue-chip stock. The go-go days of Microsoft’s stock are apparently gone.

In addition, there are plenty of things for angry investors to carp about regarding Ballmer’s performance over the years, most notably Microsoft Vista — the forerunner to Windows 7– that’s been panned literally since its release. That’s not to mention the sudden, embarrassing and early death of the Kin phone in late June.

While that leaves Microsoft’s mobile teams and executives free to focus on the upcoming Windows Phone 7, the abrupt demise of Kin, which had only been out for a few weeks, doesn’t assuage analysts fears that Microsoft may be dropping the ball in the burgeoning phone space.

Analysts said success in the smartphone market will be critical if Microsoft is going to survive long-term as more users daily access the Internet from mobile devices instead of PCs.

So what indications might be interpreted to imply Ballmer’s possible ouster?

Some analysts see the seeds of change in what was a tribute event at Microsoft’s Worldwide Partner Conference this month in Washington celebrating Ballmer’s 30th year with the company. That, some more cynical types said, was like the kiss of death.

However, there is also the perception that the company has fumbled in increasingly important markets, including music and the company’s underappreciated Zune music player line that has never come close to denting Apple’s iPod cash machine.

“What people want to see is a growth company like Microsoft was in the 1990s,” Rob Enderle, principal analyst for the Enderle Group, told InternetNews.com.

Stuart J. Johnston is a contributing writer at InternetNews.com, the news service of Internet.com, the network for technology professionals. Follow him on Twitter @stuartj1000.