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Steve Ballmer has repelled calls to step down for the moment.  (Source: Reuters)

There's no clear successor to Mr. Ballmer at Microsoft.  (Source: AP Photo)
Investor's comments will not threaten Microsoft's chief executive's job status

Microsoft Corp. (MSFT) has had its hits -- namely, the Xbox console and the Windows 7 operating system -- but it's also been plagued by misses -- namely smartphones and tablets.  After seeing Microsoft first passed by Apple, Inc. (AAPL) in market cap last year, and this Tuesday seeing International Business Machines Corp. (IBM) roar past, David Einhorn, a hedge fund manager and major Microsoft shareholder, ripped into the company's leadership, suggesting chief executive officer Steve Ballmer resign.

I. Board Backs Ballmer

In the wake of Mr. Einhorn's divisive statements, Microsoft issued no formal comment.  However, Reuters, who first reported on Mr. Einhorn's comments, said that a source close to the board says that the board stands firmly behind Mr. Ballmer.  

Microsoft's board has nine members, including chairman, company founder, and former CEO Bill Gates.  Mr. Gates stepped down from CEO in 2000 to make room for Mr. Ballmer, a veteran since Microsoft earliest years, to step up.  It's thought that if anyone could and would tell Mr. Ballmer to leave it would be Mr. Gates.  States a hedge fund manager at one of Microsoft's biggest shareholders, "Bill Gates is a ruthless capitalist. If he wanted to, he'd walk Ballmer to the door himself."

Mr. Gates, who founded the company in 1975, still has 6.6 percent of its stock, making him the largest shareholder.

II. Investors Sentiment is Mixed

David Einhorn was unequivocal in his reproach of Mr. Ballmer.  He stated at the Ira Sohn Investment Research Conference in New York City on Wednesday, "His [Steve Ballmer's] continued presence is the biggest overhang on Microsoft's stock."

Mr. Einhorn is a particular influential voice as he was arguably the most vocal in warning of Lehman Brothers Holdings Inc.'s financial troubles before the firm's collapse.

Other investors expressed varying sentiments.  

Whitney Tilson, founder and managing partner of T2 Partners LLC, which holds Microsoft stock, sided with Mr. Einhorn, attacking Mr. Ballmer in a bit more reserved fashion.  He comments, "This dissatisfaction with Ballmer, with the company, is more than baked into the stock. When you've been the top dog so long, how do you become hungry again?"

Eric Jackson at hedge fund Ironfire Capital, a former Microsoft investor, suggests the company is struggling slightly on financials.  But he says Mr. Ballmer remains the only clear leader at the company, stating, "I thought the board was firmly behind Steve, and the only way Steve was going to leave was if Steve wanted to leave. I don't see anybody else on the management team at Microsoft that I think would be much better than Ballmer."

Investors are generally frustrated by the decision to purchase Skype at nearly twice the market value.  An investment fund that Bill Gates had close ties to was among those to turn a major profit on the sale, though Mr. Gates himself did not profit.

U.S. equity fund manager at an investment house featured on the list of Microsoft's top 40 largest shareholders, comments, "What it boils down to is that Microsoft has had a load of initiatives which haven't shown traction yet. The most recent one is to buy Skype, and the perception on that is that it is overvalued. We won't know what revenue synergies are until two, three years down the road."

"Microsoft created the platform on which Google and the Internet can go forward, and it's not exactly yesterday's technology; but they do have to connect more with the mobile computing world and they haven't really done that."

III. If Not Ballmer Then Who?

The elephant in the room is Microsoft's thin executive ranks.  Microsoft has seen among the most executive turnover of any top tech firm.  The company currently has a shortage of executives with experience, entrenchment in its corporate culture.

Some blame Mr. Ballmer for this, as he has a reputation for being a temperamental leader at times.  Others blame rivals like Apple and Facebook who are skillful at luring away Microsoft's experienced staffers.

Regardless of the cause, the reality is that there's a very real question -- if Mr. Ballmer was to be replaced, who would replace him?  There's no clear candidate within Microsoft, with former Software Architect Ray Ozzie's recent departure.

An outsider remains a possibility, but results of such experiments at other companies have been mixed.  Just ask Microsoft's web partner, Yahoo! Inc. (YHOO).



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Microsoft doesn't make money?
By NellyFromMA on 5/27/2011 11:15:22 AM , Rating: 2
I thought Microsoft was an extremely profitable company? The Apple bubble is deflating a bit while the Google one is inflating. In the mean time, Microsoft is going to be near parity for feature-mongers with both Apple and Google's mobile handhelds in August IIRC. Windows 8 will be a deciding moment momentum-wise, but realistically, MS has been an extremely profitable company for some time and will continue to be for another 5 - 10 years I'd say, and that's if they fail to remain relevant. Corporate legacy support ensures this and if anyone things MS will be gone or irrelevant by then must live in a nice anti-MS technology bubble and good for them I guess? The investors are just insanely hungry for more and want their money train back at full speed. I think MS will deliver, their history sort of shows they get things at their best after iterations.




RE: Microsoft doesn't make money?
By AssBall on 5/27/2011 11:32:16 AM , Rating: 2
Yeah, they are still profitable. This hedge fund guy just wants more. He needs to chill out.


RE: Microsoft doesn't make money?
By BioHazardous on 5/27/2011 11:57:45 AM , Rating: 4
He's kind of a big deal. He owns one tenth of one percent afterall!


RE: Microsoft doesn't make money?
By JasonMick (blog) on 5/27/11, Rating: 0
RE: Microsoft doesn't make money?
By BioHazardous on 5/27/2011 12:47:23 PM , Rating: 4
quote:
Mr. Einhorn isn't necessarily right, but your comment is childish.


A lot of articles on Dailytech wouldn't make a passing grade in and English class for the number of grammatical and spelling errors. Now who's more like a child? The person making a joke or the people who consider themselves professional journalists and can't even proof read what they write before posting it.

Maybe try not to insult your users for making a joke, especially when it wasn't even at your expense. I've never once ripped on you or your articles despite the number of errors I regularly encounter. I'm done with Dailytech after your little comment.


RE: Microsoft doesn't make money?
By BioHazardous on 5/27/2011 12:47:50 PM , Rating: 2
an*


RE: Microsoft doesn't make money?
By TheRequiem on 5/27/2011 1:04:35 PM , Rating: 1
lol, what comes around goes around...


By BioHazardous on 5/27/2011 1:07:09 PM , Rating: 3
I merely lack an edit button and I also don't consider myself a professional journalist. A minor typo versus paragraphs that are so poorly written that they don't make any sense is quite different.


RE: Microsoft doesn't make money?
By AssBall on 5/27/2011 1:18:08 PM , Rating: 2
^^ what he said.

You need to chill out too, Mick.


RE: Microsoft doesn't make money?
By MrBlastman on 5/27/2011 1:19:55 PM , Rating: 2
I wouldn't run away from here because of what Jason said. He made a well, thought out counter-reply to your own. In the spirit of DT, I suggest you come up with an equally witty and tought out response to raise the bar against him.

That's what we do here. DT isn't for wimps. ;) I know you can do it. Be the ball.


RE: Microsoft doesn't make money?
By BioHazardous on 5/27/2011 1:26:39 PM , Rating: 2
I love debating and even to the point of arguing a point, but my comment was a joke and Jason decided to not merely debate or argue back but to resort to petty tactics by calling me "childish". I've pointed this out before to other commenters on the site that their points would be taken more seriously if they cut out the name calling and pettiness. So I half expect that kind of behavior on the site in general from normal users, but not from a senior person on their staff who has been here for years.


RE: Microsoft doesn't make money?
By bah12 on 5/27/2011 2:21:20 PM , Rating: 1
quote:
but my comment was a joke


Your comment was just text on a screen, delivery is what makes a joke a joke. How the hell do you expect written text to be interpreted as sarcasm as it is almost entirely a verbal/body language phenomenon. Blasting him for not taking a joke, when there was NO indication you were joking...come one don't be childish!!! And I'm all for some Mick bashing on occasion, but only when justly earned.


RE: Microsoft doesn't make money?
By Reclaimer77 on 5/27/2011 2:27:50 PM , Rating: 2
You really didn't know it was a joke? Come on, it started off with "he's kind of a big deal". You don't GET more of a give away than that these days. Using "he's kind of a big deal" is universally known as being tongue-in-cheek or sarcastic.


RE: Microsoft doesn't make money?
By bah12 on 5/27/2011 2:40:57 PM , Rating: 2
No I caught that to mean the writer thought he was NOT a big deal, thus why I think Mick's response was valid pointing out why he really is a big deal, and actually IS a major stock holder even at 1/10 of 1%.

So what was the Joke? Was the sarcasm implying him to be a minor player a joke? Or was it not sarcasm (which I agree it is obvious it was)? See what I mean, text is crazy hard to tell what he was joking about? I (and Jason) thought he was serious in that he thought this guy was a nobody, by the "he's kind of a big deal" comment. As you suggest it clearly implies that the author does not think much of the guy. I disagree, 1/10 of 1% of MS stock means that statement is quite literal he is in fact a big deal.


RE: Microsoft doesn't make money?
By Reclaimer77 on 5/27/2011 3:42:39 PM , Rating: 2
Ok I'm not mathematician, but a tenth of a percent is not major. No matter how you slice it.

Mick was, as usual, bashing people with a different opinion than himself or those who don't agree with his article. Typical bad form, but in this case against someone who made a pretty good joke.

Think about it, he owns a TINY part of MS, and thinks he can demand they remove a CEO? He, literally, think he's kind of a big deal. No doubt he owns many leather bound books as well :P


RE: Microsoft doesn't make money?
By BioHazardous on 5/27/2011 3:55:03 PM , Rating: 2
quote:
No doubt he owns many leather bound books as well

I'll bet his apartment smells of rich mahogany too!


By Reclaimer77 on 5/27/2011 4:53:49 PM , Rating: 2
lol see? Someone has a sense of humor! :)


By JKflipflop98 on 5/27/2011 8:30:48 PM , Rating: 2
Okay, okay. I'm sorry. Let me start over.

I want to be on you.


RE: Microsoft doesn't make money?
By really on 5/27/2011 2:31:21 PM , Rating: 2
Ya'll be fightin too much. Take a chill pill.


RE: Microsoft doesn't make money?
By Reclaimer77 on 5/27/2011 1:10:22 PM , Rating: 3
quote:
(He could have at least criticized Microsoft's decision to grossly overpay for the recently acquired Skype.)


And he would have been wrong, again. Microsoft did not overpay. It's not about how much Skype is "worth" as a single piece of tech and namesake. Microsoft needs to bulk up to compete with Google's cloud services, and Skype will be KEY in doing so.

Skype, like Google Voice which is tightly integrated into Android, will be folded into the mobile operating system to give full mobile VOIP capabilities that will most likely tie in with Microsoft’s server products ex. Exchange server for storing voicemail along email, voice recognition, transcription services, etc.) , just as Google purchased Grand Central to turn it into Google Voice to move vast amount of profitable mobile telephony services out of the reach of telcos and totally to Google’s cloud – leaving only data services to the telcos.

Ten years from now all these armchair quarterbacks who thought they "overpaid" for Skype will be scratching their heads, while REAL experts will be looking back on one of the best moves Microsoft has ever made.


RE: Microsoft doesn't make money?
By Ramstark on 5/27/2011 6:45:43 PM , Rating: 2
OMG That's one of the first REALLY smart comments about business strategy in a MSFT threat I've ever seen.
A lot of people can say that Ballmer is no techie, and probably they would be correct, but he has an iron fist and smart bomb in his pocket when it comes to business.
+5


RE: Microsoft doesn't make money?
By Da W on 5/27/2011 11:47:24 AM , Rating: 3
Profitable yes, but the stock was trading at 60 times profits in 2000, then 40 times profits, then 20 times profits and now 9,85 times profits. And that multiple is an indication of the growth rate investors think the company will have. In short: yes it makes profits but investors think MS has hit the ceilling and the good days are behind it.

Of course, the market is always wrong. In 2000 the market was expecting exploding growth, which did not happen. Even when Vista came out the market expected like 20%-30% annual growth, which did not happen. Now the market expects the end of microsoft, which might not happen either.
An old saying is that analysts are good at forecasting what happened yesterday.

At that price, i'm a buyer! You still get a 2,5% dividend, way more than what you get if your money sleeps in a checking account.


By KoolAidMan1 on 5/27/2011 3:56:36 PM , Rating: 2
Growth is a major component of a stock's price. Apple currently makes more gross and net revenue than Microsoft, and their year-over-year revenue growth still has zero signs of slowing down. It is the same reason IBM's stock has been on such a tear lately, very rapid growth in back end and in services.

Microsoft is insanely profitable (very little out there has the pure profit margins that software does), but it is completely on the backs of operating systems and office software. They make loads of cash but it is in mature and saturated markets that don't have the potential for growth that they did fifteen years ago.

On the plus side, low investor sentiment means that this may be a very good time to buy some MSFT. At worst you are stuck with a low-dividend stock, but it is trading near the bottom of a 10 year range and it may have a resurgence at some point. Now's as safe a time as any IMHO.


RE: Microsoft doesn't make money?
By dsuse on 5/28/2011 4:41:55 PM , Rating: 2
Microsoft may "take in money", however I think the US government has the task of actually making it (even though, the more they print, the less it is worth, apparently).

But the real cutting issue for me here is the pictures of Ballmer used by DailyTech. I think the one from this article might need to be added, if Ballmer is to continue on as Microsoft mascot:

http://www.canada.com/technology/Microsoft+chief+s...

Apparently it is from Reuters. Has a sort of "dark Sith-lord" flavor to it that might come in handy at DailyTech.


"Can anyone tell me what MobileMe is supposed to do?... So why the f*** doesn't it do that?" -- Steve Jobs














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