Ballmer opens up on Microsoft's future

What is the focus with Xbox?
"[It's got huge market share] It's not making money but that's our problem. If you take a look at market share we're neck and neck with Sony in the US and neck and neck or ahead in the UK. But we're nowhere in Japan."

Are you seeing an upturn in IT budgets and investment?
"Starting in 1998 IT budgets got ramped up for Y2K and then the Internet bubble. Then there was a two-and-a-half year drying out period. We're now in a stable place. IT directors are making good cost/benefit trade-offs. We're seeing good levels of investment in corporate IT. We see lots of growth in the enterprise server software market."

How do you see the threat to your licensing and pricing policy from Linux, piracy, price erosion and selling cheaper versions of cut-down Windows in some developing countries?
"[On the Hindi version of Windows] If we get paid for anything we raise our price. There is no price erosion. Our price in China is exactly the same in the UK. We offer a good product, good value, good price and good total cost. This [cheap version] is designed for poor people in poor countries. Today most people are paying less in emerging markets than in the UK. Why? Because most people pirate."

How much does Microsoft lose to piracy?
"$6bn to $8bn in sales. China alone is multibillions. IP rights are not well enforced. Yes it bothers me. All developed countries should be concerned we have an imbalance here. It's a big issue."

Is Linux more of a marketing than a technology problem?
"Sometimes there is also a political dynamic. Unlike every other competition we've ever been in we were quiet and shy with the facts. Two years ago we were grappling with this mysterious competitor. It feels more like a normal competition nowadays."

Is Linux your number one competitor?
"What is the number one competitor to Windows these days? It's Linux. By numbers we are winning and we have gained market share in the server space -- although so has Linux. People are starting to realise free is not free. This stuff does not have low total cost of ownership. We know what we're doing. We'll continue to gain ground."

Are you disappointed with the delays to Longhorn and will the phased rollout of some features slow down adoption as people wait for the full version?
"Longhorn has a schedule now and it will ship in 2006. If we'd never announced that we will conceptualise it people would still say it’s the biggest best Windows we've ever released. We'll get early adopters and some people will wait."

What are your thoughts on the decision not to buy SAP and are acquisitions still on the agenda?
"Ultimately we did decide to pass. It's funny because we were pretty good on confidentiality on that deal and the world really wouldn't have known about it if it hadn't have been for the Oracle PeopleSoft case. We're always looking at acquisitions but we don't have cash earmarked for acquisitions. Almost all of those [big deals] are done for stock anyway. We'll return the $75bn to shareholders and if we can return even more we will."