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No obvious successors for Microsoft's Ballmer

26 August 2013, 08:24 Reuters

New York - Microsoft Chief Executive Steve Ballmer unexpectedly announced his retirement on Friday, ending a controversial 13-year reign as the head of the world's largest software company and sending the company's shares up 7%.

Ballmer, 57, a close friend and confidant of co-founder Bill Gates since the company's earliest days, took over as CEO in January 2000. During his tenure Microsoft's revenues tripled but he's long been a target of criticism from Wall Street and Silicon Valley as the company's share price stagnated and rivals Apple and Google led a mobile computing revolution that has upended the global technology industry.

Ballmer's planned exit comes just weeks after the company announced a major reorganisation and delivered an earnings report that showed across-the-board weakness in the business, including dismal sales of the company's new Surface tablet and a lukewarm reaction to the crucial Windows 8 operating system.

Activist investing fund ValueAct Capital Management LP said in April that it had taken a stake in the company and shortly after began agitating for a change in strategy and a clear CEO succession plan.

There are no obvious candidates to succeed Ballmer at the company that has only had two CEOs in its 38-year history.

Many promising executives have left or were pushed out by Ballmer, who had once indicated that he intended to stay at least until 2017.

The recent reorganisation was aimed at reshaping Microsoft - once primarily a purveyor of packaged software - into a company focused on devices and services, essentially mimicking Apple.

Most industry watchers felt it was too little, too late, though the company's statements on Friday said the strategy would remain intact for now.

"Since he took over in 2000, it is fair to say he missed a number of transitions: mobile, tablets, cloud," said Zeus Kerravala, an analyst at ZK Research.

"Microsoft continues to live off traditional PC computing. Ballmer's strength is traditional PC computing. He was a great guy for his era but times have changed and a new leadership is needed. It's hard to say his tenure has been a success."

Microsoft's already-large profits doubled since Ballmer became CEO, but its share price has flatlined over the last decade, and has never come close to the split-adjusted high of $59.97 it reached in late 1999, before the tech stock bubble burst.

Microsoft shares were up 7% at $34.64 on Nasdaq on Friday.

Microsoft, like Apple, has been under pressure from shareholders to hand back more of its cash hoard, which now totals $77bn.

"This might accelerate more shareholder-friendly capital returns of that cash treasure trove, which would help in the revaluation of the stock to more appropriate levels," said Todd Lowenstein at fund firm HighMark Capital Management, which holds Microsoft shares.

Surprise timing

Ballmer, a forceful, often emotional leader, was regarded a great salesman rather than a brilliant technologist.

He will retire within the next 12 months, once a special committee has selected a new CEO.

The timing of the announcement came as a surprise, and the lack of a succession plan suggested the recent setbacks may have spurred the company's board to act.

Gates remains chairperson of the board, which has historically followed his lead. "Yes, this was a surprise, especially considering how close it is to the recently announced strategic overhaul towards devices and services," said Sid Parakh, an analyst at McAdams Wright Ragen.

Ballmer himself acknowledged his decision was abrupt.

"There is never a perfect time for this type of transition, but now is the right time," he wrote in a memo to employees.

"This is an emotional and difficult thing for me to do. I take this step in the best interests of the company I love."

Ballmer said in a statement he had originally considered retiring in the middle of the reorganisation, but eventually decided "we need a CEO who will be here longer term for this new direction."

The committee to select a new CEO is to be chaired by John Thompson, the board's lead independent director, and includes Microsoft co-founder and chairperson Gates, as well as board members Chuck Noski and Steve Luczo.

It will consider both external and internal candidates and work with executive recruiting firm Heidrick & Struggles International, according to Microsoft.


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