"We have a big upside opportunity in devices," Ballmer said.
Windows' small share in the smartphone and tablet markets is one of the biggest criticisms leveled at Ballmer in recent years, as Apple's iOS and Google's Android seized market opportunities. Microsoft's attempts to recover lost ground in this sector includes the decision to make its own tablet, the Surface, and to radically redesign its flagship OS with an interface optimized for touch screens in Windows 8.
The first generation of both Windows 8 and the Surface tablets, launched about a year ago, failed to deliver the success Microsoft had expected, but the company isn't giving up, hoping that the Surface 2 line of tablets and the Windows 8.1 update -- both released recently -- will address customers' main complaints.
Ballmer also said the broad corporate restructuring he unveiled in July is "under way ... we're operating with a single strategy and starting to work as a single team," he said.
That reorganization, referred to as One Microsoft, is intended to make Microsoft function more cohesively and stamp out in-fighting among the different product teams.
As part of the restructuring, Microsoft dissolved its five business units -- the Business Division, which housed Office; Server & Tools, which included SQL Server and System Center; the Windows Division; Online Services, which included Bing; and Entertainment and Devices, whose main product was the Xbox console. It replaced them with four engineering groups organized by function, around operating systems, applications, cloud computing and devices, and by centralized groups for marketing, business development, strategy and research, finance, human resources, legal and operations.
Ten years from now, people will look back amazed at how "primitive" technology was in 2013 and how Microsoft went on to lead the way and achieve greatness, he said.
"I'm optimistic. I treasure my Microsoft stock," Ballmer said. "I'm confident we have the right strategy in place."
Ballmer also said the company plans to complete its integration of Skype and Lync in the next three to six months. Skype is Microsoft's unified communications product for consumers and small businesses, while Lync is its enterprise counterpart. Microsoft wants to make them fully interoperable.
The question-and-answer period with investors wasn't a lovefest but it was civil.
One shareholder expressed skepticism about recent big acquisitions, and said he wasn't enthusiastic about the Nokia deal, because in his view the phone maker has struggled against competitors in recent years and isn't in good financial shape.
Ballmer acknowledged that some big acquisitions have been failures, like the $6 billion deal for the aQuantive ad network in 2007, but said Microsoft can't shy away from pursuing these large deals if it deems them necessary to remain competitive and go after new opportunities. The Nokia deal makes absolute sense as part of the "devices and services" push and also because the two companies have been working together on smartphones and the teams know how to collaborate, he said.
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