Ballmer Exit Brings Microsoft a Chance for Reinvention By NICK WINGFIELD Published: August 23, 2013 SEATTLE — Steven A. Ballmer announced on Friday that he was leaving the top job at Microsoft, paving the way for a generational change at the once-dominant technology company and giving it an opportunity to reinvent itself for a world dominated by mobile devices, social media and other technologies that have eluded its influence. But with no clear successor to Mr. Ballmer lined up and a jumble of businesses that will require the skills of a polymath to run, the company still faces huge obstacles to reclaiming its former glory. While Microsoft in Mr. Ballmer’s reign as chief executive has yielded the spotlight to more glamorous companies like Apple, Google and Facebook, it still makes some of the biggest money-gushers in the technology business, including its Windows operating system for personal computers and Office applications like Word. Its profit last quarter was nearly $5 billion, compared with $3.2 billion for Google and $6.9 billion for Apple. Anyone who uses a PC to create a résumé or a term paper or to do online banking is more often than not doing so on a machine running Windows. But the PC business, which Microsoft has ruled for decades, is under siege by mobile devices like tablets, an area that Microsoft has stumbled in, and that Mr. Ballmer famously underestimated. Analysts say the company needs to act quickly to right itself. “The walls are falling now,” said George Colony, chief executive of Forrester Research, a research and advisory firm. “They may fall very quickly. There’s not much time for the board.” Nonetheless, it has given itself a year to choose a successor, and Mr. Ballmer, 57, will stay on until then. The company declined requests for an interview with him. Some analysts have suggested that Microsoft could use a seasoned turnaround artist in the mold of Lou Gerstner, who rescued I.B.M. from irrelevance in the 1990s. Current and former Microsoft executives said the company would more likely turn to someone with a technology pedigree. Some pundits have called for Bill Gates, Microsoft’s co-founder and chairman, to return to the company, in a nod to how Steven P. Jobs revitalized Apple. But people who know him said Mr. Gates has no intention of doing that because of his full-time focus on philanthropy. Others believe Microsoft is not governable in its current form. Ben Slivka, a 14-year employee of Microsoft who left in 1999, said the company should split up into five independent companies he calls “Baby Bills” devoted to Windows client software, Office applications, servers, Xbox and the Web. “Give each of them (say) $5B for a rainy day, but not much more,” Mr. Slivka wrote in a post on Facebook after the news of Mr. Ballmer’s retirement. “You want them to be hungry. Return most of the cash hoard to shareholders.” That Mr. Ballmer announced his plans without a successor in place is puzzling and led to speculation among current and former Microsoft executives that Mr. Gates might have been losing patience with his longtime friend, whom he first met when they were students at Harvard University in the 1970s. A spokesman for Mr. Gates said he was not available for interviews. While the board, Mr. Ballmer and Microsoft gave no public indication that he was pushed out, the disappointing stock price may have been a factor in his departure. Over Mr. Ballmer’s 13-year tenure at Microsoft, the stock has lost 36 percent of its value, if the dividends that Microsoft pays out are excluded. Apple, meanwhile, was up nearly 2,000 percent over the same period. With the announcement of Mr. Ballmer’s departure on Friday, Microsoft’s stock rose more than 7 percent, closing at $34.75. “Microsoft will have to go through a very hard and painful transition,” said Joachim Kempin, a former senior Microsoft executive, who has written a book critical of the company under Mr. Ballmer. “I’m not very confident the next guy will be able to immediately turn the ship around.” This year, ValueAct, a hedge fund known for behind-the-scenes shareholder activism, began acquiring a small stake in Microsoft. Some analysts say they believe other shareholders might have been willing to join with the fund in efforts to lobby for management changes at the company. Two years ago, the investor David Einhorn said Mr. Ballmer was “stuck in the past” and called for him to go. Mr. Ballmer provided plenty of fodder for such critics over the years with his dismissals of technologies that turned out to be game-changers. At a forum in Seattle in 2007, shortly after Mr. Jobs introduced the iPhone, Mr. Ballmer said there was “no chance that the iPhone is going to get any significant market share.” Apple now has 13 percent of the global smartphone market, and the company made over $18 billion in revenue from iPhone during the last quarter — four times Microsoft’s Windows sales during that period. Microsoft’s mobile phone software runs on less than 4 percent of devices shipped. Microsoft’s financial performance in the coming quarters could also have amplified calls for a leadership change. The company posted disappointing results in its most recent quarter as its venerable Windows business showed signs of succumbing to a broader slump in personal computer sales. Microsoft also disclosed a $900 million charge to cover its unsold inventory of Surface tablets, the company’s answer to the iPad. Mr. Ballmer’s departure comes after the company’s recent announcement of a major restructuring intended to improve its nimbleness and reduce infighting between its powerful divisions. That shake-up will now be overseen by a lame duck chief executive with declining influence over the company’s work force of nearly 100,000 people, said Robert Bontempo, a professor at Columbia University’s business school. “To me it’s a recipe for disaster,” he said. “They’re not getting rid of the old guard quickly enough. I predict we’re going to have 12 months of stagnation from Microsoft.” (Mr. Ballmer has in the past said he intended to remain at the helm of the company until his youngest son left high school; he is now a freshman.) In a statement on Friday, Mr. Ballmer said he believed the company needed an executive who planned to remain well beyond its restructuring. “My original thoughts on timing would have had my retirement happen in the middle of our company’s transformation to a devices and services company,” said Mr. Ballmer, whose stock holdings in Microsoft are worth more than $11 billion. “We need a C.E.O. who will be here longer term for this new direction.” The selection of the new chief will be overseen by a special committee of the board that includes John W. Thompson, the board’s lead independent director, and Mr. Gates. Mr. Ballmer will be remembered by his fans for his exuberant personality and relentless salesmanship on the company’s behalf. While his failure to seize new opportunities like mobile phones, tablets and search hurt his standing with investors, he was praised for continuing to squeeze dollars out of its existing businesses. Annual revenue at Microsoft more than tripled under his watch. Mr. Colony of Forrester said Mr. Ballmer was most successful when he had a technology visionary, Mr. Gates, by his side. “It was when those two separated that the trouble began,” he said.
Posted on: Sat, 24 Aug 2013 05:33:29 +0000
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