August 24, 2013

Microsoft CEO Ballmer to retire within a year

The news comes less than two months after Microsoft announced a sweeping reorganization of its business in an attempt to reignite competition with faster-moving rivals such as Apple and Google.

By Barbara Ortutay and Bree Fowler / The Associated Press

NEW YORK - Microsoft CEO Steve Ballmer, who helped Bill Gates transform the company from a tiny startup into the world's most valuable business, announced plans Friday to retire sometime in the next year -- a move that presents another challenge to the tech giant as it struggles to move beyond the era of the personal computer.

click image to enlarge

Microsoft CEO Steve Ballmer speaks at a Microsoft event in San Francisco in June. Ballmer, who helped build Microsoft into a technology empire and then struggled to prevent it from crumbling under his own leadership, will retire within the next 12 months. The world’s biggest software company has not yet named a successor.

2013 AP file photo

VALUE PLUMMETS UNDER BALLMER

When Steve Ballmer took over as CEO in January 2000, Microsoft was the titan of tech and the world's most valuable company. How things have changed.

In the 13 years since Bill Gates handed over the CEO spot, the technology landscape has seen seismic shifts. The Internet bubble popped, erasing paper fortunes built on dot.com companies. Apple's iPods, iPhones and iPads became ubiquitous. Google became a verb. And Facebook turned social networking into something you do by yourself, instead of surrounded by people at happy hour.

The years have been less kind to Microsoft.

"Complacency and a lack of innovation caught up to them," said Yun Kim, an analyst at Janney Capital Markets. "It's their inability to stay relevant beyond the PC."

When Ballmer became CEO, Microsoft had a market value of $604 billion. That heft meant it accounted for nearly 5 percent of the Standard & Poor's 500 index, according to Howard Silverblatt, an analyst at S&P Dow Jones Indices.

Now, Microsoft's market value is $269 billion, less than half of its value when Ballmer came to power. It makes up less than 2 percent of the S&P 500.

Under Gates, Microsoft dominated the software industry throughout the 1990s, and the company's soaring stock had far-reaching effects. Newly minted "Microsoft millionaires" left to launch tech companies, venture-capital firms and charities.

But under Ballmer, Microsoft's stock has been a dud, losing 44 percent during his tenure. Still, dividend payments have compensated for some of the slump. An investment of $1,000 in January 2000 would now be worth just $767 after reinvesting dividends, according to data from FactSet.

The same investment in Apple would be worth $20,120.

– The Associated Press

Microsoft and other companies that thrived in the PC business have been scrambling to win back consumers who increasingly prefer smartphones and tablets.

Detractors say Ballmer contributed to the situation by not taking early threats from Apple and Google seriously enough. He consistently pooh-poohed Google as a one-trick company and in 2007 declared: "No chance that the iPhone is going to get any significant market share."

Ballmer's jeers proved premature. Google quickly made important inroads in Internet video, online maps, email and mobile computing. Those successes contributed to the damage that Apple's iPhone and iPad did to Microsoft and its partners in the PC market.

Although it derives some three-quarters of its revenue from sales of software and services to businesses, Microsoft has failed to capture the imagination of consumers who have become more enamored with mobile gadgets. Response to the newest version of its flagship Windows operating system, Windows 8, has been lukewarm.

When Ballmer took the helm in January 2000, the company was worth more than $604 billion. Today, its value is less than half that amount, at nearly $270 billion.

"There is never a perfect time for this type of transition, but now is the right time," Ballmer, 57, said in a statement. He planned to stay on until a replacement is found. Microsoft said the search committee would include Gates.

After the news broke, Microsoft's stock shot up as much as 9 percent and later came within two dollars of a 52-week high.

Ballmer's announcement comes less than two months after the company unveiled a sweeping reorganization of its business in an attempt to catch up with Apple and Google.

In his statement, Ballmer noted that Microsoft is moving in a new direction and needs a CEO that will be there for the longer term.

Microsoft, he added, "has all its best days ahead."

Ballmer met Gates in 1973 while they were living down a dormitory hall from each other at Harvard University. He joined Microsoft in 1980 to bring some business discipline and salesmanship to a company that had just landed a contract to supply an operating system for a personal computer that IBM would release in 1981.

Ballmer, a zealous executive prone to arm-waving and hollering, did the job so well that he would become Gates' sounding board and succeed him as CEO. He has worked at Microsoft for 33 years, matching the tenure of Gates, who left the company in 2008.

Though investors cheered the news on Friday, BGC financial analyst Colin Gillis cautioned that it could be a "tough 12 months" for the company.

The obvious successor -- former Windows head Steven Sinofsky -- got booted by Ballmer, he said. Sinofsky left the company last year shortly after the launch of Windows 8. He recently announced that he joined the venture capital firm Andreessen Horowitz.

When Ballmer joined Microsoft in 1980, it was populated with geeky programmers, led by Gates and the other founder, Paul Allen. Ballmer had already held a product-management job at Procter & Gamble and was attending Stanford University's graduate school of business when Gates convinced him to move to the Seattle area to whip Microsoft into shape.

Ballmer dropped out of Stanford, but only after Gates agreed to give him an 8.75 percent stake in the then-tiny startup that had not even incorporated as a company. It turned out to be one of the world's greatest business partnerships.

By late 2012, Ballmer had accumulated an estimated fortune of nearly $16 billion from his initial Microsoft stake and additional stock options he later received.

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