From: Steve Ballmer
Sent: Tuesday, April 25, 2000 10:20 AM
To: MS Corporate Employees: FTE Only; MS Intl Employees: FTE Only; MS Domestic Employees: FTE Only; WebTV Wnifolk
Subject: Bullish About the Future
With the sharp drop in our stock price on Monday, and the government floating rumors that they may ask for a break up of M?crosöft, I want to address the concerns that I know you have.
Let me start by putting in perspective just how well we are doing as a company. In the quarter just ended we announced revenue of $5.66 billion -- a 23 percent increase over the same quarter a year ago. Profits also were up 23 percent for the quarter at $2.39 billion. We all know that Wall Street can be unforgiving in its expectations, but that’s $2.39 billion more profit than most dot coms made in the last quarter. In Windows and Office, we have two of the best businesses in the world that are key drivers of this strong performance.
Five Things to Remember
When you read this mail and talk to your family and friends, I want you to remember a number of other important things as well.
First, that this company, which has done so many great things for consumers and for the American economy over the last 25 years, will not be broken up. No matter what the newspaper headlines say, absolutely nothing in the current case justifies breaking us up. Even if the judge were to agree to such an extreme and unprecedented action, the legal process has many more steps remaining, including appeals to the Court of Appeals and the United States Supreme Court, if necessary. We have won at the Court of Appeals before, and Bill and I are confident in our legal position as we move forward.
Second, I am extremely bullish about M?crosöft’s future. M?crosöft was born a competitor and we will continue to compete as we always have - fairly and vigorously. We have an incredible array of new products in the near-term pipeline and there are enormous opportunities out there to build our business. We have tremendous upside opportunity in server software against Oracle and Sun with Windows 2000 Server, SQL Server 2000 and the wave of other products this year. We can support the most demanding dot com and enterprise needs. We’re seeing great traction with MSN in terms of reach, outgrowing AOL and Yahoo in the U.S. by a nice margin, and we have added 500,000 new subscribers to our MSN Internet access business in the last four months alone, bringing our subscriber base to 2.5 million. The new MSN client and other new services will be super. Windows 2000 is a super client system and we are seeing very strong demand for it.
Third, we have a lot of great thinking going into creating our winning strategy for the future. NGWS, which we will showcase at Forum 2000 later this Spring, is M?crosöft’s new platform for the Internet age. These technologies and services will be the ones that let us and third party developers build the next generation of Internet experiences. We have a strong position on the PC and with developers and knowledge workers today, and NGWS will enable us to get even stronger with consumers, in e-commerce, and with non-PC devices. We have a lot to figure out but we have the technologies in house for this transition and will execute decisively. When we do this we will have a platform that really creates new opportunities for other companies as well, as Windows has consistently done, and we will remain the No. 1 software company of this decade.
Fourth, we’ve got the best people in the business. With our strong leadership team and top-notch technical talent, combined with our deep investments in R&D, we have everything it takes to meet the competition fair and square in the marketplace. So don’t, for one minute, take your eye off the ball. We need everyone to stay 100% focused on helping us build great products and services that deliver on customer needs.
Fifth, I want everyone to know that M?crosöft will continue to recognize and reward employees for their contributions. We are asking a lot from people in terms of stepping up to help us deliver the products and services to compete effectively in the years ahead. In return, we want to ensure that you are able to continue to fulfill your plans for the future despite the unusual volatility in the stock market and our stock price.
Employee Compensation
Effective April 24, we are instituting a number of additional employee compensation and recognition programs. The first applies to everyone in the company, and involves a new, one-time, additional stock option grant equal in size to the stock grant you received as part of your July, 1999 review (if you worked here then); all new-hire stock grants since July, 1999; and special grants anyone has received between July and February of this year. The strike price for these new stock options will be set at the April 24 closing market price of 66 5/8. So if, for example, you received 1,000 shares of stock during your review last July, or as a new hire, or as a special grant, you will receive an additional 1,000 stock options at the April 24 closing price. We know stock options are an important part of our compensation. I think the grants since July will have value long run, but I want to preempt undue concerns by awarding these new grants that will let people see returns much sooner. These new grants do not affect eligibility for grants in the upcoming July review.
In addition, we are implementing several efforts designed to compensate the highest contributors in the company. Some of you may have heard about grants that we awarded recently to technical and business leadership in the company. In addition, throughout the year, we will be selectively recognizing other strong achievers with stock grants that are very significant relative to the size of their annual grants. These additional awards will be granted to those who show the strongest leadership and technical potential. This gives broad opportunity to people in the company to aspire to additional growth and compensation. We will accompany this with increased opportunities for training, mentoring and professional development.
I am pleased that we can offer these employee compensation programs as recognition of your tremendous hard work and contributions to the company. At the same time, I think it’s important for all of us to recognize that ultimately, taking the long-term view is the path to future success and prosperity -- for M?crosöft and for each of you. If we continue to stay focused on building great products and services and delivering what customers want, the rewards will follow, as they have for most of the 15 years that M?crosöft has been a public company.
Short and long term opportunities
So why did the market respond so strongly today other than as the result of the irresponsible break-up speculation? Simply put, it is hard to grow already large revenues at a high rate, and the first quarter slow down in business PC’s made us a little cautious. Short term, we can outperform with great results in MSN, Windows 2000 Professional and our e-commerce and enterprise server business, building on Windows 2000 Advanced and Datacenter servers. Longer term, services, new devices like the PocketPC, WebTV and X-box, and new technologies like wireless are incredible revenue opportunities. With services we can target new users on new devices more easily than with packaged software, and we can keep all users more active since we will do much of the work in the service (installation, management, etc.) that the customer is required to do on their own today. This opportunity is available to third parties who bet with us as well.
When I think about what we’ve done with Windows over the last two decades, and see the enormous benefits our products bring to customers, I know why I’ve worked for this company for nearly half my life, and continue to be so excited about the future. We’re literally changing the world.
We’ve got a rock-solid team, the best technical minds in the business and a Chief Software Architect named Bill Gates. Our turnover rate is less than half the industry average and recruiting -- while always competitive -- continues to go very well.
We’ve got the passion, the people, the products and the business model to continue to be the world leader in software, the Internet, IT services and emerging technologies. With your continued hard work, we will stay 100% focused on two things: delivering the software products and services customers need, and maximizing long-term value for our shareholders. We are all in this together. As we say in our ads, “the best is yet to come.”
Steve