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Hedge fund manager wants Microsoft's Ballmer to go: Why it won't happen

Summary: A famous hedge fund manager wants Microsoft CEO Steve Ballmer to go and let someone else lead the company, but the chance of that happening are slim.

Larry Dignan

By for Between the Lines |

A famous hedge fund manager wants Microsoft CEO Steve Ballmer to go and let someone else lead the company, but the chance of that happening are slim.

David Einhorn, head of the hedge fund Greenlight Capital, on Wednesday outlined why Ballmer needs to go. We know the complaints by now: Microsoft missed the mobile curve and has no answer to Apple's iPad. In addition, Microsoft is overpaying for Skype and other deals.

Einhorn, who spoke at the Ira Sohn Investment Conference, is best known for criticizing Lehman Brothers before it unraveled. Einhorn is only saying publicly what others mumble. The problem is that Greenlight holds 9 million shares or just 0.11 percent of outstanding shares, according to Thomson Reuters.

In other words, Einhorn would have to rally a lot of shareholders to his boot Ballmer cause. The top 10 Microsoft investors go like this via Thomson Reuters data:

  • Bill Gates own 6.65 percent of outstanding shares, or more than 560 million shares.
  • Ballmer owns 3.95 percent of Microsoft's outstanding shares, or 333 million.
  • Capital Research owns 3.56 percent, or more than 300 million shares.
  • Vanguard owns 3.44 percent of Microsoft.
  • State Street owns 3.43 percent.
  • BlackRock owns 3.05 percent.
  • Capital World, JP Morgan, T. Rowe Price and Fidelity all own about 1 percent to 1.5 percent of Microsoft.

In other words, Einhorn needs to convince Gates and Ballmer that Ballmer needs to go. Good luck with that pitch. Meanwhile, mutual funds aren't killing it with Microsoft shares, but they are collecting some nice dividends.

Given the realities of the shareholder pecking order is it any wonder that Microsoft shares are up only slightly following Einhorn's comments?

Here's a look at the 5-day chart:

Topics: Microsoft, Banking

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34 comments
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  • Well...

    Ballmer has done both Apple and Google a tremendous favor by sticking around. I bet they would both hate to see him go. ;-)
    Economister
    Reply Vote

    • Quite true

      @Economister ... if Microsoft were more effective, it would only hamper the entire ecosystem and make change that much slower and more unreliable.
      HollywoodDog
      Reply Vote

    • Has Ballmer really done a bad job?

      @Economister I think some realism needs to be brought back into the picture. Microsoft is a big player in enterprise infrastructure software (Exchange, SQL, etc.) and has made big inroads into enterprise cloud computing with Azure.

      Microsoft has energized the gaming industry with Kinect. And after the Vista stumble, Windows 7 is performing respectably. And even good old Bing seems to be finally getting some traction after some unsuccessful earlier attempts with Live.

      Ballmer got blindsided on mobile, and his results from the "go it slow on tablets" approach are still unknown. It hasn't all been roses for Ballmer.

      But it hasn't all been downside either. Microsoft makes a fortune in a pretty high margin business. We've certainly seen far less successful CEOs more highly lauded in these pages.... perhaps Ballmer should be cut a break.
      Mac_PC_FenceSitter
      Reply Vote

    • Loverock Davidson say ell will freeze over before he leaves ....

      and Loverock Davidson is never wrong, just ask him :-)
      Linux_Forever
      Reply Vote

  • RE: Hedge fund manager wants Microsoft's Ballmer to go: Why it wont happen

    Any other CEO would have been gone by now...just sayin
    ewell44
    Reply Vote

    • Why?

      @ewell44,

      MS has been growing its profits steadily over the last 11 years. In spite of competitors collectively trying to bring its core businesses down, the businesses have only grown, and also new multi-billion dollar businesses have arisen. The only thing you can find fault with Ballmer, is with the performance of MS' stock. But MS' situation is one where few, if any CEO could come out of. The tech media is constantly hostile to MS, and will simply not give the company a break. The tech media treats no other company this way, absolutely no other! So given the fact that the stock market valuates a company based largely on public image, MS' stock has been in the doldrums since its U.S. antitrust trial days, and remains stuck there today. Getting rid of Ballmer is not going to change this one bit. This actually started when Bill Gates was CEO. The media just hates MS, and until MS takes control of the media itself, nothing is going to change. The only way I see MS can deal with its dilemma, is to establish its own media network (including a cable investor news channel) that acts as a lightning rod, attracting a significant portion of the overall media, to have a more balanced view. MS' own media network might even have to attack the anti-MS media from time to time, to undermine its credibility.

      So the main reason MS' stock underperforms is because of the media, and this needs to be addressed, rather than taking the drastic step of replacing its CEO. You don't replace a CEO because he underperforms in one, out of a myriad of areas. Also, who would you replace Ballmer with? Even if you were to e.g. convince Steve Jobs (whose health doesn't look too good) to be MS' new CEO, he would probably sink the ship, because he doesn't know anything about business computing; has repeatedly failed there; and business computing is the largest source of MS' income.

      One other thing, I've heard people comment Ballmer doesn't know what he's doing on the consumer front. Now these people say this after Ballmer took more direct control of MS' mobile computing, and entertainment division. Now you have MS with arguably the best smartphones on the market, having a great ecosystem (after about 7 months), and promising to release an update, which will easily allow Windows Phones to surpass Android phones in both user experience and capabilities. My guess is that WP7 will also definitely best the iPhone when the Mango update is released. Also, revenue for the entertainment division has ballooned, with MS releasing an updated Xbox 360 console, and the best selling, highly innovative Kinect device. So the evidence actually contradicts people's assertion that Ballmer doesn't know what he is doing on the consumer front.

      The media really blows things out of proportion. Apple bests MS in three areas - music players, smartphones, and tablets - and they say its curtains for MS. There are countless areas MS bests Apple and Google, but the media doesn't breathe a word of it. Do you realize that Google's only major accomplishment over the last 11 years, besides its search engine / Internet advertising network, has been Android? Google suffers failure, after failure, after failure, and the media ignores it. MS falls behind in one or two areas, in the meantime <a href=http://www.quora.com/How-many-billion-dollar-businesses-does-Microsoft-have-today>creating several multibillion dollar businesses (e.g. Sharepoint, Exchange, developer tools, Xbox)</a>, and the media pronounces the impending doom of MS. If the media really cared about MS stockholders, it would reign in its negativity about MS. But there is a snowballs' chance in hell that that will ever occur. In fact the media relishes its ability to sink MS stock - like it did with the announcement of the MS - Nokia partnership. So, in my opinion, if MS wants to get its stock moving upwards, it has to acquire media assets, and influence a significant portion of the media towards having a fair view of the company - and may have wage war against the tech media community, from time to time.
      P. Douglas
      Reply Vote

      • RE: Hedge fund manager wants Microsoft's Ballmer to go: Why it wont happen

        @P. Douglas --- Growing profits doesn't mean squat unless the stock price rises consistently. Investors make money off rising share price, not on the retained earnings most corps never payout.
        sackbut
        Reply Vote

      • RE: Hedge fund manager wants Microsoft's Ballmer to go: Why it wont happen

        @P. Douglas

        "Apple bests MS in three areas - music players, smartphones, and tablets - and they say its curtains for MS. "

        Except Windows' marketshare is on the decline and the replacements have 0 Microsoft involved. Ask GM how years of declining marketshare worked out for them?

        Smart companies pass on Exchange, Sharepoint, and the other over complicated, uber expensive, and totally locked in Microsoft products. It's easy to build a billion dollar enterprise with ever increasing license fees and no real way out....
        itguy08
        Reply Vote

      • itguy08, most of what you have mentioned

        @itguy08
        has been proven to you to be quite incorrect:

        [i]Smart companies pass on Exchange, Sharepoint, and the other over complicated, uber expensive, and totally locked in Microsoft products[/i]

        As others have stated otherwise, (and sales figures have proven) that the products you mentioned are quite the opposite, as smart companies have purchased, and continue to purchase them to the figure in billions.

        And many have also stated the products are quite easy to set up and use.

        I do not know where you draw your "information" from, but can you explain why it runs so contrdictory to what the majority here have said about those products?
        :|
        Tim Cook
        Reply Vote

  • Curious case of Microsoft Shares!

    Nothing seems to pull down or push up MS shares significantly.

    They just flushed $ 8.5 Billion of their cash reserves for Skype and the stock doesn't crash.

    They made the best ever quarter in their history, the stock doesn't move a bit upward.
    rockroars
    Reply Vote

    • The share price should only change when expectations change

      @ rockroars

      Microsoft have mostly been doing what everyone expected them to be doing, so there's no reason for the share price to change. If they start doing substantially better (or worse) than expected, e.g. in terms of profit growth rates, the share price will probably move -- in fact, share prices often overshoot when expectations change.

      In the 90s, Microsoft's share price exploded because hardly anyone in the early 90s expected Microsoft to dominate the spreadsheet and word processor markets, or realised the potential of the graphical OS market, coupled with a high rate of PC sales growth.
      WilErz
      Reply Vote

  • Since the topic of stocks were brought up ...

    On another Blog site whose punchline is, "May Steve Ballmer remain Microsoft's CEO for as long as it takes.", states that "...An investor who put $100,000 into Apple stock 10 years ago would now have about $2,956,000 worth."

    And "... An investor who put $100,000 into Microsoft stock 10 years ago would now have about $69,000 worth."

    I don't know if those stats are true but if they were close to reality and I were an investor in Microsoft, I wouldn't need much convincing to support Einhorn's opinion.
    kenosha77a
    Reply Vote

    • RE: Hedge fund manager wants Microsoft's Ballmer to go: Why it wont happen

      @kenosha7777 Your analysis is spot on
      sackbut
      Reply Vote

    • Anyone buying AAPL in 2001 was speculating

      @ kenosha7777<br><br>You're confusing investment with speculation. Ten years ago, Apple would have best been described as a marginal, failing PC manufacturer, and indeed the company made a loss in 2001. The businesses that drive Apple's success -- the iPhone and iPad, iTunes and even the iPod itself -- didn't exist ten years ago. Those who bought AAPL in 2001 were speculators who got lucky. A good number of speculators who bought shares in other marginal/failing firms around the same time have been unlucky (the firms have gone bust).<br><br>Microsoft's business hasn't changed much over the last decade, and in the early '00s the MSFT share price was still stabilising, after coming down from the peak of the '90s bubble. There's been some fluctuation, right now on the down side, but assuming the MSFT share price returns to the trend over the last decade, MSFT has by and large done about as well as the overall US market. That means Ballmer has been doing an average job as CEO (despite regulatory constraints not faced by most firms, some of which have just recently ended).<br><br>Given an average record, and even assuming a seamless transition, the odds that a new CEO would provide better returns to shareholders are about the same as the odds that he/she would do the opposite. In view of that, there's no reason to change -- it would add a lot of risk, with no expected increase in returns.<br><br>(As an aside, the odds of AAPL doing as well over the next ten years as over the last ten are virtually nil.)
      WilErz
      Reply Vote

  • And didn't people kick Jobs out years ago?

    Look how well that went.
    Sometime people want something for all the wrong reasons.

    It's not like investors or people would ever sell a company's future short for quick cash today.
    Will Pharaoh
    Reply Vote

    • RE: Hedge fund manager wants Microsoft's Ballmer to go: Why it wont happen

      @Will Pharaoh Yea, the same Wall Street types sided with Sculley to get Jobs sacked. It's an easy thing to say sack Ballmer.Any clue as to whom he should be replaced with? Saw HP struggle for a CEO & finally hire somebody who had been sacked from a software firm? In my opinion there are not more than 3-4 people like Ellison or Jobs or Palismano who can run a complex ship like MS, none of whom are available. So, is Wall Street sure that sacking Ballmer wont screw up things even further? Ballmer has done everything which would be the envy of a Fortune 50 firm like maintaining a high profit margin, successfully retaining monopolies for so long, growing turnover & profits almost every year, etc. Please show somebody else who can at the minimum do this & then start the 'Sack Ballmer' dance.
      mm71
      Reply Vote

    • Not the same thing

      @ Will Pharaoh

      Steve Jobs was never Apple's CEO before 1997, and the Mac actually did much better under Gassee's management from 1985-90 than it had under Jobs's brief tenure (sales of the original Mac were quite poor). It was only after Gassee was pushed out in 1990 that the Mac started to flounder.
      WilErz
      Reply Vote

  • Message has been deleted.

    LoverockDavidson
    Reply Vote

    • Message has been deleted.

      Economister
      Reply Vote

    • RE: Hedge fund manager wants Microsoft's Ballmer to go: Why it wont happen

      Hedge fund manager needs to get a new job. He wants Microsoft's stocks to be overvalued like other tech stocks so he can make more money then sell. Microsoft is being analysts estimates year after year so they are doing something right. They aren't going to overvalue their stocks because they are already being closely watched by the government. Einhorn should sell his Microsoft stock if he doesn't like the way things are being run there.
      LoverockDavidson
      Reply Vote
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