3 Things That Steve Ballmer Didn't Say

Steve Ballmer issued his final letter to shareholders yesterday. 

Microsoft's (NASDAQ: MSFT  ) CEO won't be around when the next annual report introduction is penned next year, and Ballmer's milking the moment. Detailing the passion that has governed his three decades at Microsoft, Ballmer tries to paint his final year at the helm in a favorable light. It isn't easy to sell a 6% increase in revenue as something to get excited about.

Eventually Ballmer points to coming developments. We have the Windows 8.1 update and Surface 2 hitting the market later this month. Xbox One rolls out next month. There's also the new wave of devices that will be possible once Microsoft completes its $7.2 billion acquisition of Nokia's handset business. 

However, there's a lot that seems to be left unwritten in Ballmer's letter. Let's go over a few things that he probably should have noted.

1. Even giving away licenses may not be enough
There was chatter last week that Microsoft -- in an effort to win back some Windows Phone handset makers -- is willing to give away licenses. Bloomberg reported that the software giant is in talks with HTC to install Windows Phone as an alternative to Android. 

That won't be enough. It's too late. Android has the market cornered on free mobile operating systems. Why would handset makers want to bloat their smartphones with an operating system that may be gaining some headway in Europe, but is a fringe player nearly everywhere else? 

Nokia was able to put out cheap Lumia devices because it had a Microsoft deal that was better than free. Even before Microsoft's buyout, former Nokia CEO Stephen Elop -- Finland's new uber-villain -- explained that Nokia was receiving billions in exchange for backing the platform. Now that owning Nokia's handset business will be a conflict of interest, Microsoft will have a hard time even giving away licenses.

2. Fiscal 2014 won't feel like a renaissance
Despite the flurry of new products in the coming weeks, analysts see revenue only climbing 5% in fiscal 2014. They see margins contracting as earnings grows even slower, and that's with the padded benefit of Microsoft's aggressive stock repurchases buying down its outstanding share count.

Ballmer won't say it, but he may be stepping down at the right time. The challenges are real.

3. The new products won't be slam dunks
Windows 8.1 is supposed to fix the shortcomings of the redesigned Windows 8 operating system, but don't hold out on next week's release breathing new life to the computer industry. PC sales have fallen for five consecutive quarter, and no one will be surprised if in a few days we find that the streak stretches to six periods of year-over-year declines. Microsoft will brag about selling a ton of licenses, but at the end of the day, the PC continues to fade in relevance to product categories where Microsoft is a distant third.

Surface 2 will probably be the last hurrah for Windows RT as a tablet operating system. The outlook is relatively more encouraging for Surface Pro 2, but high prices will continue to keep demand in check.

The Xbox One would've been Microsoft's likeliest success story, but then the company alienated a lot of die-hard gamers with restrictive policies for playing with the new console (they've since been widely reversed). The video game industry is finally starting to show signs of life, but Microsoft's continuing stateside dominance isn't a given as it introduces the most expensive of the three next-generation systems.

Ballmer's legacy will clearly be mixed. The stock was a disappointment under his watch, but financials did improve substantially. The challenge here is finding someone to take his place as Microsoft faces the most difficult time of its history.

"I know our best days are still ahead," Ballmer writes in closing. 

That's easy to write when you won't have to be held accountable for a very challenging future.

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  • Report this Comment On October 10, 2013, at 9:00 AM, jvgfool wrote:

    What about Microsoft Exchange, Win Server 2012, SharePoint, EndPoint, System Center, Office, etc? These are systems that Androids and iPhones connect to in the background. This article talks about the tip of the iceberg, and we have already heard all this. Please keep in mind there is more to the technology world than just gadgets.

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