Microsoft investors don't show much love

Microsoft is off to the best start to a fiscal year since 1999, Chief Executive Steve Ballmer just gave a rosy outlook for the holidays and beyond, and the board of directors was re-elected Tuesday with near-unanimous support.

But Tuesday's shareholders meeting didn't have the spark longtime investors remember from the good old days.

"When I used to go to Microsoft meetings, it was like, 'Thank you, you made me a millionaire,' " said James Arnstein of Vancouver, Wash., who was attending his first shareholders meeting since 2000. "The room was just so powerful because you created so much wealth for the shareholders."

While there were plenty of kudos from investors, applause was generally tepid and there was no gaggle of shareholders seeking autographs from Chairman Bill Gates at the end of the meeting.

Microsoft continues to create wealth. The company returned $31 billion to shareholders last fiscal year, which ended June 30, through stock buybacks and dividends. That's 175 percent of the company's cash flow, which executives acknowledged is unsustainable.

And in the first quarter of this fiscal year, in which revenue rose 27 percent and profit rose 23 percent, the company's share price rose as well — finally, many investors would say. It eventually hit $36.81, a six-year high.

What happened next, while not unusual, bothered some shareholders. At least two made their discontent known to the company's leadership.

Since the quarterly report Oct. 25, Microsoft insiders have sold more than 15 million shares, according to regulatory filings.

Some sellers were exercising stock options or completing prearranged trading plans.

Most of the sales were by Gates, the largest stockholder, who unloaded 14 million shares between Halloween and Nov. 8, generating more than half a billion dollars.

"Like all the shareholders in this room and elsewhere, we were delighted three weeks ago when the stock took a nice bounce up and exceeded its six-year high," said Peter Schroeder, a Seattle man who said he owns 60,000 shares and has been an investor in the company since 1986.

"Curiously, after that, for about the next 10 days, the stock has been decreasing, falling down every day," Schroeder said.

(That trend reversed Tuesday when Microsoft shares gained 3.6 percent, or $1.19, to close at $34.46.)

The insider sales signaled to Schroeder — and, he said, to Wall Street — "a certain lack of confidence in the future of where the company was going."

Ballmer, who noted he was not among the selling insiders, said Microsoft directors and top managers remain significant shareholders.

"It's a significant part of what we own and our net worth and there's a lot of confidence I think in the future of the company, but from time to time people will certainly sell shares," he said.

Gates said he has "sold the same number of shares every quarter for over five years, so that's a plan that I've been on, so that's a very predictable thing.

"I do think that if you look at the volume that, clearly, there are factors in terms of overall market sentiment that are involved there, but I certainly agree with you we all want the stock to be as high as possible."

Also at the meeting:

• Two shareholder proposals were defeated. One would have authorized the board to create a committee on human rights. The other would have requested management to institute policies to fight Internet censorship.

• Ken Hutcherson, the senior pastor at Redmond's Antioch Bible Church who previously called for a boycott of Microsoft for its support of gay-rights legislation, made a brief statement to start the question-and-answer session. He warned the company he plans to lead "a firestorm" of opposition because of its policies and declared he represents one of its "worst nightmares."

Benjamin J. Romano: 206-464-2149 or bromano@seattletimes.com