Ballmer Out: Amid Microsoft’s Big Shift, Will it Satisfy Wall St.?

8/23/13Follow @curtwoodward

Steve Ballmer’s surprising retirement as Microsoft CEO comes at a very turbulent time for the company, in almost every possible sense.

After becoming legendary in corporate circles for its warring internal factions, Microsoft has just embarked on a huge reorganization, championed by Ballmer, that attempts to unify control of the company.

That follows a seismic strategy shift, which saw Microsoft reject its long-held reliance on outside hardware manufacturers in favor of its own Surface line of tablets. Tackling hardware on its own has irked some valuable longtime partners, but it’s also been a financial liability—Microsoft had to write off some $900 million in revenue to reflect unsold hardware, more than it actually made on the new devices.

And Wall Street, which hasn’t been happy with Microsoft’s laggardly stock price for years, has been getting more aggressive. Activist shareholders have stepped into the fray this year, and were reported to be pushing for a board seat to advance their ideas of what Microsoft should do.

In fact, as Nomura Securities analyst and Microsoft expert Rick Sherlund noted, the deadline for public notice of any proxy fight for board seats would have been Aug. 30—just one week from today.

In short, Ballmer leaving does not end Microsoft’s woes.

Although the company’s board said in its press release that it remains committed to the “devices and services company” transition that Ballmer has championed, any new CEO worth their salt would want latitude to move things around as they see fit.

Shareholders also could be ready to pounce on questions of the company’s structure. For many years, one of the old reliable ideas for Microsoft critics and analysts was a corporate break-up: Split the enterprise and consumer-focused businesses apart, at a minimum, to get each side of the house more focused (and move money-losers like online services away from the cash cow of enterprise sales).

Chatter about that idea started resurfacing as soon as the Ballmer news hit, and could grow louder as the company searches for a replacement CEO.

No matter what happens, Wall Street certainly welcomed the news that Ballmer would be shipping out sooner than his previously announced timeline of 2017 or 2018. The company’s shares bounced up on the announcement, but “up” is relative—as of midday trading, Microsoft stock still hadn’t reached the $35.44 per-share price that it last saw before last month’s disastrous Surface RT write-down.

One final note that highlights just how much things have changed since 2000, when Ballmer took over the CEO job from co-founder Bill Gates: In the past four quarters, Microsoft has taken in close to $78 billion in revenue. Apple’s iPhone—which Ballmer infamously mocked when it was introduced—accounted for nearly $89 billion in revenue all on its own.

Curt Woodward is a senior editor for Xconomy based in Boston. Email: cwoodward@xconomy.com Follow @curtwoodward

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