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
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
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
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).
quote: He's kind of a big deal. He owns one tenth of one percent afterall!
quote: Mr. Einhorn isn't necessarily right, but your comment is childish.
quote: but my comment was a joke
quote: No doubt he owns many leather bound books as well
quote: (He could have at least criticized Microsoft's decision to grossly overpay for the recently acquired Skype.)