August 23, 2013 / 1:26 PM / in 4 years

UPDATE 5-CEO Ballmer retires as Microsoft struggles to modernize

* Ballmer to retire in next 12 months
    * Special committee to find new CEO, no obvious candidate
    * Activist shareholder recently campaigned for change
    * Ballmer long criticized by Wall Street

    By Bill Rigby
    SEATTLE/NEW YORK, Aug 23 (Reuters) - Steve Ballmer, a
passionate salesman who has been a central figure at Microsoft
Corp for more than three decades, unexpectedly
announced his retirement as chief executive on Friday, ending a
controversial 13-year reign in which the world's largest
software company lost its position as the dominant force in
    The surprise move sent the company's share price up 7
percent, reflecting a widespread view that Ballmer is not the
man to reverse the fortunes of a company that remains highly
profitable but has failed to navigate the transition to the
mobile computing era.
    Ballmer's planned exit comes just weeks after the company
announced a major reorganization 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.
    Microsoft said it had engaged the executive search firm
Heidrick & Struggles and would consider both internal and
external candidates to succeed Ballmer - underscoring the lack
of a succession plan at a company where many talented executives
have been squeezed out over the years. Ballmer will stay on for
up to a year until a new CEO is found.
    A close friend and confidant of co-founder Bill Gates since
the company's earliest days, the 57-year-old Ballmer formally
notified the company two days ago of his intention to retire,
according to a regulatory filing. In an interview with the trade
publication ZD Net, director John Thompson said the search for a
successor had in fact been underway for some time.
    "We are well down the path in the search," said Thomson, who
is leading a search committee that also includes Gates.
    Still, the timing of the announcement and the lack of a
succession plan suggest the recent setbacks may have spurred the
company's board to act. Gates remains chairman of the board,
which has historically followed his lead.  
    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 has faced criticism from investors for years as
rivals led by Apple Inc and Google Inc came to
dominate huge new markets in smartphones, tablets, Internet
search and cloud computing even as Microsoft remained reliant on
the traditional personal computer.
    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. 
    Microsoft, like Apple, has been under pressure from
shareholders to hand back more of its cash hoard, which now
totals $77 billion. 
    "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.
    There are no obvious candidates to succeed Ballmer at a
company that has only had two CEOs in its 38-year history. 
Ballmer had once indicated that he intended to stay at least
until 2017. 
    Ballmer can claim some important successes: revenue tripled
during his tenure, profits doubled, and the company scored a big
success with the Xbox videogame business. The Windows and Office
franchises remain highly profitable, and Microsoft is
well-entrenched as a vendor of corporate computing products and
    At the same time, though, repeated forays into mobile
phones, tablets and music players have come to grief. The
Surface tablet, aimed at the hugely successful iPad, alienated
longtime hardware partners even as it failed to generate
significant sales, and a phone partnership with Nokia 
has thus far yielded little for either company.
    At the same time, the company has lost billions trying to
compete with Google in the Internet search business. Some of
Microsoft's corporate computing businesses are also under threat
from the industry-wide transition to cloud-based services.
     The recent reorganization was aimed at reshaping Microsoft
- once primarily a purveyor of packaged software - into a
company focused on devices and services, essentially mimicking
    Yet most industry watchers felt it was too little, too late,
with some calling on the company to back away from the consumer
products sector and focus on serving businesses.
    In the ZD Net interview, Ballmer rejected that approach.
"Nobody has ever managed to figure out how to build a device for
a user that was just enterprise or just consumer," he said.
"These core experiences do span 'consumer and enterprise.'" 
    Ballmer, a forceful, often emotional leader, was regarded a
great salesman rather than a brilliant technologist.
    A physically imposing presence with a booming voice, his
motivational efforts were the stuff of legend: a clip of a
semi-hysterical Ballmer screeching and dancing around the stage
to rally Microsoft employees has been viewed nearly five million
times on YouTube.
    Yet the antics sometimes acquired an air of desperation as
Apple and other rivals produced industry-changing innovations
that Microsoft couldn't match.
    "That is the most expensive phone in the world and it
doesn't appeal to business customers," Ballmer laughed in a TV
interview after the launch of Apple's iPhone in 2007. Five years
later, iPhone sales alone were greater than Microsoft's overall
    A Michigan native, Ballmer studied applied mathematics and
economics at Harvard, where he met Gates. Several years later
Gates persuaded him to drop out of Stanford Business School to
become Microsoft's first commercial manager and the company's
30th employee. 
    To induce him, Gates offered Ballmer part ownership of the
company, and when Microsoft incorporated a year later, Ballmer
had almost an 8 percent stake. That formed the foundation of his
wealth which is now valued at $15 billion by Forbes magazine.
    Ballmer remains one of the largest holders of Microsoft
stock, with about four percent of the company. His net worth,
ironically, soared by nearly a billion dollars on Friday as the
stock market celebrated his departure.
    Microsoft shares closed up 7.3 percent at $34.75 on Nasdaq
on Friday.
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