Microsoft Corp at UBS Global TMT Conference (Virtual) Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Karl Emil Keirstead - UBS Investment Bank, Research Division - Analyst : Yes. Terrific. Well, Judson, why don't we start with something near and dear to your heart? And that's the sales effort at Microsoft. I think everybody sort of only knows that you took the organization through a sales reorg about 1.5 years ago. But I feel like investors totally forgot about this because the execution has been so brilliant that they assume that whatever you did was just tinkering, and it didn't really have any discernible impact because the results were so phenomenal. But my guess is that there may be more behind the scenes. So it might be a nice opportunity for you to describe the reorg, exactly what you did. And in your judgment, how it turned out.

Question: Karl Emil Keirstead - UBS Investment Bank, Research Division - Analyst : And then COVID hit, Judson. And I'm sure it ended up stressing everything that you built. So maybe you could elaborate a little bit on how the commercial enterprise through SMB sales motion suddenly changed with COVID, besides the obvious that all your sales executives and reps are working from home. So how has COVID stressed the sales motion at all at Microsoft? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 08, 2020 / 6:55PM, MSFT.OQ - Microsoft Corp at UBS Global TMT Conference (Virtual)

Question: Karl Emil Keirstead - UBS Investment Bank, Research Division - Analyst : Got it. And Judson, what are you communicating to your army of sales folks about the timing of a return to a more normal, call it, pre-pandemic sales motion, flying and dining again, back in the office? What's the internal Microsoft messaging about when that is likely to happen? It's important because when giants like Microsoft start returning to normal, it can be a cue in terms of when, broadly speaking, we might enter some recovery scenario. So I'm just curious what you're doing.

Question: Karl Emil Keirstead - UBS Investment Bank, Research Division - Analyst : Yes. That's super helpful, Judson. And maybe now I'd love to ask you a few questions about the customer conversations you're having these days, what the environment feels like. So maybe I'll open with a general question about how large enterprise spending priorities have changed since COVID. I think it's pretty obvious that the initial month or 2 were very much about enabling remote access. So Microsoft obviously saw Teams usage spike, et cetera. But with the passage now of 8 months, where are we now, Judson, in November, December? What does it feel like are the key priorities as your big customers are preparing for 2021?

Question: Karl Emil Keirstead - UBS Investment Bank, Research Division - Analyst : Got it. So maybe, Judson, we'll hit a little bit on one of those drivers around getting out of your own data center faster because that would obviously be a significant positive for the party of Microsoft Suite that, as you're aware, tech investors put undue focus on, which is Azure, given how central it is to you and Satya and the rest of the team. So Judson, where do you think we are in that evolution of, post-COVID, big enterprises stepping back, deciding that they need to change their on-prem/cloud mix, make it more cloud? So the planning, whiteboarding phase. And then some of them have gone a little bit faster and have actually made deal commitments to Azure or Amazon or whomever. And then the third step is those deals actually going live in a way that it consumes compute/storage resources, and we on the outside actually see it in the form of Azure revenue. So where are we in that journey? Because that would help frame what the Azure outlook might look like.

Question: Karl Emil Keirstead - UBS Investment Bank, Research Division - Analyst : That makes sense. And I appreciate the hockey analogy. You're talking to a Canadian, Judson, so that hits home. I've got 2 questions related to Azure. One is, in terms of Microsoft's competitiveness relative to AWS and Google Cloud, do you think the COVID crisis and these changes in enterprise priorities have in any way changed the competitive dynamics among the big 3 cloud infrastructure vendors? Has it lent an advantage to Microsoft in any way worth calling out to the group today?

Question: Karl Emil Keirstead - UBS Investment Bank, Research Division - Analyst : Got it. And maybe, Judson, maybe just to continue this discussion a little bit. The way that some investors think is that the server product category that Amy and Mike disclosed is often viewed as sort of the flip side of Azure, where if big organizations reduce their on-premise footprint and migrate those workloads to Azure, you gain there, but you might lose a little bit on products like Windows server or SQL server database that are on-premise. So do you think about it the same way? And how do you manage that on-premise server product bucket to ensure that it can stay resilient as large customers like UBS migrate more aggressively to the cloud? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 08, 2020 / 6:55PM, MSFT.OQ - Microsoft Corp at UBS Global TMT Conference (Virtual)

Question: Karl Emil Keirstead - UBS Investment Bank, Research Division - Analyst : Hey, Judson, this might be unfair to ask you to quantify that. But if you had to think of what hybrid means on-premise, cloud, edge, and you had to think out 5 to 10 years as to what the mix of a typical large enterprise spend might be, are you able to bracket essentially what the end state might look like, call it, in 10 years? Or is that too challenging a task?

Question: Karl Emil Keirstead - UBS Investment Bank, Research Division - Analyst : Got it. Maybe the last broadly demand question I'd love to ask you, Judson. Clearly, Microsoft now, as most big enterprise software firms do, drives a huge portion of your revenues from larger enterprises like UBS. But Microsoft in particular has a long tail of SMB that are very big Microsoft customers as well. That, unfortunately during this economic crisis, has been the -- that tail has been hurt. And Amy has been candid on the last several Microsoft calls that, that the SMB sector has dragged growth down a little bit. I'm just wondering if you could address how Microsoft in the sales organization is dealing with that SMB segment. And is there anything you can do from a sales go-to-market motion to sort of bring that back? Or is it a function of, frankly, waiting for the economy to improve and getting a snapback in that customer segment?

Question: Karl Emil Keirstead - UBS Investment Bank, Research Division - Analyst : Got it. So Judson, we've talked a little bit about Azure, which is key to Microsoft story, but the other product that's quite central that you and Satya have been talking a lot about that's also increasingly in the conversation is Teams. So maybe I'd love to ask you, Judson, 2 things. One is why is Teams so central to Microsoft? And then secondly, a more timely question, and that's your interpretation of the Salesforce-Slack merger and what it might mean for your Teams growth going forward.

Question: Karl Emil Keirstead - UBS Investment Bank, Research Division - Analyst : Got it. But does a more muscular Slack under the Salesforce umbrella, more resources, the ability to be upsold into the Salesforce base, does it, Judson, make them a more formidable rival in the collaboration space?

Question: Karl Emil Keirstead - UBS Investment Bank, Research Division - Analyst : Okay. And Judson, we don't have too much time for questions, but I did just get one that is such a perfect segue from this conversation that I have to ask it. And that is -- I'll read out loud to you. Do you see Microsoft getting more directly involved in enterprise telephony? Or will you continue to lean heavily on carrier and UCaaS partners going forward?

Question: Karl Emil Keirstead - UBS Investment Bank, Research Division - Analyst : Got it. If we have time for one more, I'll sneak in one more. A completely different question, Judson, just to keep you on your toes. An investor asking whether Microsoft has any plans to create its own chip to compete with Apple's M1 chip, or for that matter, do what AWS did and produce chips for the use in Azure VMs?

Question: Karl Emil Keirstead - UBS Investment Bank, Research Division - Analyst : Excellent. Judson, why don't we end it there? Thank you to you and Mike Spencer and the IR team for agreeing to keynote our event and spend as much time as you have with our clients. So on behalf of UBS, Judson, thanks so much for you carving out time today for us.

Question: Karl Emil Keirstead - UBS Investment Bank, Research Division - Analyst : Okay. Bye-bye.