Steve Ballmer Deserves More Credit Than He's Getting

Three years ago I was standing in line at a grocery store outside Seattle. I don't think most people noticed the hulking bald man in front of me, but as a business writer, I did: It was Microsoft (NASDAQ: MSFT  ) CEO Steve Ballmer.

I didn't know whether to be impressed or shocked. Ballmer, who's worth $15 billion and pulls down nearly $1 million a day in Microsoft dividends, is humble enough to buy is own groceries (good), but apparently his time running one the world's largest companies isn't valuable enough to have someone buy his groceries for him (bad).

The rest of the world's opinion of Ballmer is less ambiguous. After announcing plans to retire last week, the postmortem of Ballmer's 13-year tenure running Microsoft has been uniformly negative. Under Bill Gates, Microsoft brought the world the PC and turned janitors into millionaires. Under Ballmer, it brought us the Zune and a cumulative shareholder return of negative 23%. 

The criticisms are mostly right. Microsoft gave up the Internet to Google (NASDAQ: GOOGL  ) and mobile to Apple (NASDAQ: AAPL  ) . In each, it had ample resources but a lack of vision. Ballmer led a culture that chose fat and happy over hungry and innovative. The company deserves a new leader.

But criticism without context can be misleading. The two common grumbles thrown at Ballmer -- poor shareholder returns and a failure to plant a foot in new markets -- have another side to them.

Microsoft's dismal shareholder returns under Ballmer are entirely due to timing. Ballmer took over on Jan. 13, 2000, literally days away from the peak of the dot-com bubble. Microsoft traded at 72 times earnings the day Ballmer was promoted to CEO. Adjusted for inflation the company had a market capitalization of $817 billion. For perspective, the current market caps of Microsoft, Google, and Apple combined isn't much higher, at around $1 trillion. No CEO could live up to the expectations Ballmer stepped into. Dismal shareholder returns were certain before he moved into his new office.

The truth is that while Microsoft stock has been a dud, Microsoft the company has done quite well. Take a metric a CEO has more accountability over than share price: Earnings per share. Since Ballmer took over in 2000, Microsoft has grown earnings per share by 9.5% per year, compared with 3.9% for the broader S&P 500. Next to other established large-cap tech companies, Microsoft's results under Ballmer have been excellent:

Source: S&P Capital IQ

Criticizing the dearth of innovation under Ballmer is a more rational spat, but still misses the mark. Apple became a monster in consumer devices, but that was never Microsoft's ground to begin with. Google took over Internet search, but it struggles to make a dent in Microsoft's business software division. There is no shame in sticking to your circle of competence, and that's what Microsoft has done -- quite well, in fact. As John Gapper of Financial Times writes:

What's happened to Microsoft over the past 30 years? Has it gone up like a rocket and flamed out, like most technology companies? Not only is it still around but it's one of the biggest companies in the US -- as valuable as Google. The real threat to Microsoft was that open source software would undermine Windows, but that didn't happen. Its servers division -- a boring, solid performer that churns out cash, is prospering and Microsoft shows every sign of adapting to the era of cloud computing.

Take revenues at Microsoft's three core divisions: Windows, Microsoft Business, and Servers and Tools over the last decade:

Source: S&P Capital IQ

If these numbers represent the work of a failed CEO, stop the ride. I want off.

"The resignation of Microsoft's CEO is also an acknowledgement: The computer world changed, and Microsoft hasn't," Derek Thompson wrote last week. He's right. After Ballmer's three decades at Microsoft, the company needs a fresh face and new ideas. But when pundits talk about Microsoft losing its edge, or falling behind, or becoming a dinosaur, remember that in 2012 it earned more free cash flow than the annual GDP of more than half the world's countries. Pardon me for thinking it's done some things right. 

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Read/Post Comments (13) | Recommend This Article (8)

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  • Report this Comment On August 28, 2013, at 9:47 PM, TMFHousel wrote:

    Correction:

    "Microsoft has grown earnings per share by 9.8% per "

    Should be 9.5%, per chart. Should be corrected soon.

    -Morgan

  • Report this Comment On August 29, 2013, at 12:42 AM, Zerxies wrote:

    The way Microsoft relies on piggy-backing Apple's products, software, and OS, eventually even the Windows zombies and MicroSheep will discover that other things exist. Can't wait for the day that Unix-based OSs reclaim market share in the computer world...

  • Report this Comment On August 29, 2013, at 3:21 AM, kyleleeh wrote:

    isn't calling Ballmer a great CEO for doubling sales at a time when the PC market tripled a lot like hedge fund managers calling themselves "smart money" for underperforming the S&P?

    Ballmer's management of Microsoft reminds me of an interview I read from a former GM exec around the time they were flirting with bankruptcy. One line jumped out at me: " the beginning of these companies downfall was when they started to be run by people who knew a lot about finances and accounting and nothing about cars."

  • Report this Comment On August 29, 2013, at 3:31 AM, kyleleeh wrote:

    ok, the PC market has not quite tripled, but still Microsoft revenue has trailed the growth of it's end market.

  • Report this Comment On August 29, 2013, at 5:00 AM, H3D wrote:

    "The criticisms are mostly right. Microsoft gave up the Internet to Google and mobile to Apple"

    He 's done little on their core turf.

    Windows 7 works but is little improved from Windows 2000 / XP Pro that were around when he took the hot seat.

    And Windows 8 promises to create another generation of users that stick with old versions.

  • Report this Comment On August 29, 2013, at 6:58 AM, EyeHateFools wrote:

    Ballmer needed to go a few years ago. He understood the model of the 90s, but took over in the 2000s,,, that's a problem. The Surface failed because he tried to make it look like a PC,,, people don't need wireless if they have USB ports, everybody will use a tablet sitting upright at a desk so it needs a kickstand and keyboard, screen resolution is only important to people that watch videos on their tablet, etc. While he was busy trying to pull everyone back into the 90s, he didn't notice the world had moved on. Some work is much more optimal on a pc, like creating complex spreadsheets, so everyone will continue to have a pc, but they will spend their dollars to upgrade the devices they use most often and not worry so much about having the latest and greatest pc.

    He should have brought in a bunch of 20somethings and had them explain the new world to him. But, even if he had, he would have spent his time trying to bully them into seeing the world from his point of view.

  • Report this Comment On August 29, 2013, at 8:17 AM, MaxTheTerrible wrote:

    You say Ballmer, and I see a guy that took over a complete monopoly on both consumer and business sides and conceded MSFT position on the consumer side to competitors. While MSFT still maintains its grip on business, which this article details quite nicely, one has to wonder how long that's going to last. Now, add billions (yes, that's billions, with the "B") of $$ lost on failed acquisitions, a string of failed products (with some bright spots in between, to be fair) and you have to wonder if a ham sandwich could have run this company better.... Oh, and yelling on CNBC didn't help.

  • Report this Comment On August 29, 2013, at 10:02 AM, sniperboy wrote:

    I give Ballmer credit for making some key patent acquisitions which enables them to make money off every device using Droid. Hopefully, Ballmer's replace will change the culture at Microsoft and give the company a new direction. Remember, it wasn't long ago that long standing companies like Disney and Apple had their down periods too. Microsoft just needs the right leader with a vision.

  • Report this Comment On August 29, 2013, at 6:39 PM, rianjones1983 wrote:

    Check out the MSFT Q4 2013 Transcript for a better picture of the transformation @ http://www.earningsimpact.com/Transcript/82135/MSFT/Microsof...

  • Report this Comment On August 29, 2013, at 11:52 PM, somethingnew wrote:

    If these numbers represent the work of a failed CEO, stop the ride. I want off.

    I guess only time will tell but I don't think this is at all about the short term or the last 10 years. Kodak had a near monopoly and rising profits for years doing the same thing and not innovating yet in the end it was a failure due to complacency of all it's former leaders who had at one time increased earnings but in the end (even if it was unitentional) contributed toward it's bankruptcy. Every once in a while you get a rare CEO that realizes they have to change the whole course of a company and go into an entirely different business even while the company is still profitable to avoid inevitable failure. American Can is a good example of this. Most though follow the example of Balmer and roll the dice. Maybe Microsoft will get lucky and pull off an IBM in the long term but I have my doubts.

  • Report this Comment On August 30, 2013, at 9:22 AM, cmalek wrote:

    MSFT was never an innovator but an imitator and each of their imitations came lateter and later after the original innovation.

    WHY was MSFT stock such a dud?! If MSFT was such a revenue machine under Ballmer, why did the stock price not reflect that? For most of Ballmer's reign, MSFT was trading in $20-$30 range.

    "Apple became a monster in consumer devices, but that was never Microsoft's ground to begin with. "

    Then why the ZUNE??? Why Windows Phone???

    "There is no shame in sticking to your circle of competence,"

    Too bad MSFT doesn't/didn't see it that way. They want to get into and control every market.

    " and that's what Microsoft has done -- quite well, in fact."

    Horse Puckey! MSFT has tried to chase each and every new fad and fell flat on its face doing it.

  • Report this Comment On September 01, 2013, at 10:30 PM, lowmaple wrote:

    cmalek If Balmer had taken over a few years later he would have started with a 20s $ stock. It was the irrational buyers that were partialy to blame. However he doe'nt seem like a great CEO to me either.

  • Report this Comment On October 24, 2013, at 10:14 PM, thidmark wrote:

    Comparing Microsoft to GM and Kodak? C'mon guys. If the facts punched you in the nose, you wouldn't know it.

    The guy just showed you in the article that the OS is not even it's core business anymore ... and it went right over your heads.

    Not only is it making gobs of money but it has a rare AAA balance sheet.

    I don't own the stock, but it's on my radar.

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