"Acquisition discussions are finished," he said.
But he continues to leave the door open to another sort of deal with Yahoo. Microsoft is still interested in doing some sort of search collaboration deal, as it proposed before negotiations between the companies fell apart.
On Monday, Yahoo announced that CEO Jerry Yang intends to step down from that role after the company finishes its search for a successor. Yang has been heavily criticized for his resistance to Microsoft's takeover offer earlier this year. Yang will continue to remain on the board.
Microsoft executives, including Bill Gates who appeared for the first time at an annual shareholders meeting since his transition to working for Microsoft only part time, discussed a wide range of other subjects during the meeting.
Ballmer hinted that Windows 7, the next iteration of the operating system, could come next year. The company hasn't nailed down an exact timeframe for its availability but Ballmer referred to the release of Windows 7 "in the year ahead."
Ballmer described the earnings growth the company experienced this year, but warned that the economic downturn will pose challenges in the future. "Our industry and our company won't be immune," he said.
"We are looking at every aspect of our business to reduce costs," he said. That involves a close inspection of all aspects of the business that can be run more efficiently and includes slower growth particularly in headcount for the rest of the financial year and even into the next year, he said. Microsoft has recently denied an official hiring freeze, despite reports from employees who say they've been told that open positions were being reconsidered and no new positions would be created.
Microsoft advised against and shareholders voted down a couple of proposals that would have required the company to do more to protect freedom of speech rights in countries with oppressive governments and refuse to work with such governments to identify Internet users. Formal policies would do more than Microsoft's recently announced involvement in a group that has defined a code of conduct related to freedom of expression, said Larry Dohrs of Newground Social Investment who presented the proposal at the meeting. That agreement contains too many loopholes that let companies like Microsoft circumvent or ignore its commitments, he said.
China is notorious for its censorship of the Internet and for its harsh reaction to people who speak against the government online. But Microsoft sees great potential in China, despite that and heavy piracy rates in the country. While two to three years ago Microsoft saw a significant reduction in piracy rates in China, it hasn't seen the same level of progress in the past year, said Brad Smith, general counsel at Microsoft.
But the sheer size of the market makes it promising if the industry can stamp out piracy. "It will maybe take some patience but China looks like a bigger net opportunity for the company since they're not participating as fully as we'd like in the market because of piracy but it's an upside that hopefully we can realize over time," Ballmer said.