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).

"I modded down, down, down, and the flames went higher." -- Sven Olsen

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