Bill Gates, co-founder and now chairman of the world's largest software company, was one of the first to champion tablet-sized devices more than 10 years ago, but Microsoft failed to come up with a product that worked as well as the iPad. Gates was silent throughout the meeting, attended by about 450 shareholders.
"We're innovating on the seam between software and hardware," said Ballmer, asked why his company had fallen behind rival Apple. "Maybe we should have done that earlier."
A month ago, Microsoft launched the Surface tablet its first own-brand computer but has not revealed sales figures.
In the tablet market, "we see nothing but a sea of upside," Ballmer said, an acknowledgement that until now Microsoft has effectively had zero presence in the tablet market.
"I feel pretty good about our level of innovation," he added.
Ballmer said smartphones running Microsoft's new Windows software were selling four times as much as they did at this time last year. Microsoft has never given sales numbers of Windows phones, primarily made by Nokia, Samsung and HTC.
Windows currently has 2 to 4 percent of the global smartphone market, according to various independent data providers. Its overall market share will not likely grow in proportion to its own sales, given that sales of other smartphones - mostly running Google's Android system - are also growing quickly.
Ballmer, flanked by Gates and Chief Financial Officer Peter Klein, was asked by several shareholders to explain Microsoft's lackluster share price, which has been stuck for a decade, and has been outperformed by Apple and Google Inc stock in recent years.
"I understand your comment," he told one shareholder. He went on to explain that Microsoft had "done a phenomenal job of driving product volumes" and was focusing on profiting from that growth.
He suggested that whether investors recognized that value at any given time was out of his hands.
"The stock market's kind of a funny thing," he said, adding that Microsoft had handed back $10 billion in dividends and share buybacks to investors in the last fiscal year.
Several shareholders at the meeting in Bellevue, an upscale suburb of Seattle, complimented the executives on how they had grown and managed the company.
Microsoft's shares rose almost 18 percent during fiscal 2012, which ended in June of this year, compared with a 3 percent rise in the Standard & Poor's 500.
Despite such fluctuations, Microsoft's shares stand around the same level they did 10 years ago.
© Thomson Reuters 2012