Microsoft's Steve Ballmer: Should he stay as boss?

18 April 2013 Last updated at 17:16 ET By Shanaz Musafer Business reporter, BBC News, New York

Following some goofy and exuberant public presentations, Microsoft's chief executive Steve Ballmer is certainly a larger than life character.

But with Microsoft having had to play catch up to the rise of smartphones and tablets, some critics have called for Mr Ballmer to resign and let somebody else take the company forward.

A lacklustre reaction to its latest operating system Windows 8, which was much-hyped but failed to impress, has also turned the spotlight on the chief.

Former Microsoft executive Joachim Kempin believes Mr Ballmer, who has been in the top job since 2000, should either leave the group altogether or at least move to a different role.

He told the BBC that Mr Ballmer's assertion that Microsoft is now a device and service company is "baloney", and that Microsoft is and always has been a software company.

'Totally wrong'

Mr Kempin worked for Microsoft from 1983 to 2002, and by the end of that time was in charge of selling Windows and Office to PC manufacturers.

"When I look at the situation today it is obvious Microsoft is abandoning these people [PC makers]," he says. "Microsoft are going into surface tablets. These tablets are OK products, but nothing really distinguishes them either."

By making this move, the company has alienated some of its manufacturing partners, he says, pointing to the likes of Hewlett-Packard and Samsung now producing Android tablets, not Windows tablets.

He says the company has also missed a trick with its Office software suite, by not putting it on Android devices and a smaller version on iPhones and Android phones. Instead Mr Kempin says they are protecting the Windows franchise, which is "totally wrong".

And the buck stops with the chief executive, he says. "Mr Ballmer is a great COO (chief operating officer) but he doesn't have that vision. A CEO needs to look at the total market."

He added that Mr Ballmer's style of management was very "prescriptive" and that the company had lost much of its entrepreneurial spirit.

Strong balance sheet

Microsoft pointed to its strong financial performance since Mr Ballmer became chief executive.

Revenues have nearly tripled from $25.3bn (£16.6bn) in 2001 to $74.3bn in 2012, and operating income has risen from $11.7bn to $25.3bn.

It also said that over the past decade, Mr Ballmer had returned more than $180bn to shareholders via dividends and stock buybacks, more than than any US company besides Exxon, and the $63bn cash it has on its balance sheet is second only to Apple in the US.

However, Microsoft's share price has been pretty stagnant over the past decade, generally trading between $20 and $30. By comparison, Apple's has soared from around $9 to about $700 in September 2012, though it has since fallen back to about $400.

It should be pointed out that Mr Kempin only worked under Mr Ballmer's leadership for a year or two, more than a decade ago, and that he left the company under somewhat of a cloud after deals he signed with PC makers were used as ammunition by the US government's anti-competition investigators.

He has now written a book called Resolve and Fortitude: Microsoft's "Secret Power Broker", which details his 20 years at Microsoft.

He may well have an axe to grind as well as a book to sell, but he is not the first person to call for Mr Ballmer to be replaced.

In May 2011 David Einhorn, president of the hedge fund Greenlight Capital - an institutional investor in Microsoft - said Mr Ballmer should step down as chief executive after IBM and Apple had surpassed Microsoft in terms of market value.

It was time to "give someone else a chance", Mr Einhorn said, though Greenlight has since increased its holding in Microsoft to a $289bn stake suggesting it still has faith in the stock, whatever Mr Einhorn's feelings on Mr Ballmer.

And at Microsoft's last shareholder meeting in the autumn, Mr Ballmer received approval from over 96% of investors.

Windows 8 impact

While Microsoft's revenues rose in the most recent quarter, 75% of its overall revenues comes from elements that are not pinned to the operating system.

However, there is no getting away from the fact that Windows 8, which launched at the end of October, has not impressed the market. Revenues from Windows in the January-to-March quarter were flat when adjusted for upgrade offers.

Last week, research firm IDC said global PC sales fell 14% in the first three months of the year, adding that not only had Windows 8 not provided a positive boost to the PC market, but appeared to have slowed the market.

"Windows 8 was not able to overcome the sexiness of new tablets and new phones," Patrick Moorhead, technology analyst at Moor Insights & Strategy, told the BBC.

"Microsoft took some gambles which didn't end up working out for them - [like] the pervasiveness of touch. All their advertising was about touch, touch, touch.

"Windows 8 was underwhelming as it was received by the market."

Microsoft's chief financial officer (CFO) Peter Klein, whom it has just been announced will leave the company at the end of June, has previously defended the transition to the new operating system.

"It's early days and an ambitious endeavour like this takes time," he said in January. "Together with our partners, we remain focused on fully delivering the promise of Windows 8."

'Give him credit'

Colin Gillis, technology analyst at BGC Partners, believes Mr Ballmer has had a lot of successes that aren't always credited to him.

"Kinect at the time was the fastest-selling consumer electronics device in history, XBox was also fast selling," he says. "And that was a very competitive marketplace.

"He's built up a multi-billion-dollar enterprise business, but the flipside is the computing landscape has shifted and Microsoft has not shifted well with it - this is the rise of smartphones and tablets.

"A lot of it is down to the leadership. It's fair to critique him in that area. But if you're going to penalise him in the areas where he's late to market you also need to give him credit for areas where he was successful."

Mr Moorhead agrees, saying that financially Microsoft is doing well through acquisitions and growth in their enterprise businesses.

"I think the bad opinions of Microsoft are harsher than the reality. [But] Microsoft and Ballmer are going to be measured in the eye of the public by how well did they do in phones and how does their trajectory looks in tablets, which right now is nowhere."

Outsider?

In a recent interview, Microsoft chairman Bill Gates was asked if he was happy with the performance of the firm under Mr Ballmer's rule.

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He replied: "There are a lot of amazing things that Steve's leadership got done at the company over the last year - Windows 8 is key to the future, the surface computer, Bing, people are seeing as a better search product, the XBox.

"But is it enough? No. He and I are not satisfied, in terms of breakthrough things, that we're doing everything possible."

So should Mr Ballmer remain in charge? While Mr Kempin firmly believes he should hand over the reins, Mr Moorhead says there is no imminent need.

However, he adds: "I think if you see multiple quarters of PC declines I don't see that Ballmer would be able to stay in power."

But it would be hard to pick a replacement, he says, given that so many top people have left the company.

CFO Peter Klein's departure follows that of Steven Sinofsky, the head of Microsoft's Windows division.

Mr Sinofksy could have been in line had Windows 8 been a success, but he left the group just a week after the Windows 8 launch, amid talk of an internal "war" between himself and Mr Ballmer.

If and when the time comes though, Mr Moorhead believes the company could bring in somebody from the outside.

"I think that it would be a good thing for Microsoft in that it would bring some new ideas, a new type of fire."