Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



2 Reasons Microsoft Needs a New CEO Now

In late August, when outgoing Microsoft (NASDAQ: MSFT  ) CEO Steve Ballmer announced he was retiring, the notion that he'd do so "within the next 12 months, after a successor is chosen," seemed like a good idea. For both shareholders and Microsoft itself, a full year to choose the next head honcho made sense: The company could take the time needed to fully vet the best CEO candidates in the world to make sure it made the right pick.

But the benefits to Ballmer's year to choose his successor are gone, leaving investors and analysts alike feeling uncertain about Microsoft's future. And as every Fool knows, uncertainty and stock performance do not make good bedfellows. So what's changed to cause all the angst? A couple of things, one short-term and one long-term, and the only way to remedy the situation is to get the next CEO onboard -- now.

The near-term problem
Though less concerning for Foolish investors considering Microsoft as a long-term growth and income alternative is the impact a lame-duck CEO is having on analysts. Though up 40% for the year, Microsoft's share price has been flat to slightly negative the past week, largely because of analyst downgrades.

As you may have guessed, "worries about the software giant's transition to a new CEO," or some derivative thereof, are being cited for recent downgrades from the likes of Bank of America Merrill Lynch and UBS, and you can bet there'll more until Microsoft sorts out its CEO situation.

Microsoft's own employees, according to one report, are also beginning to feel a bit anxious. One anonymous source said there was "a sense of suspended animation setting in among some employees and managers." How does that manifest itself? According to that same anonymous somebody, the indecision surrounding Microsoft's leadership has given internal folks the feeling that decisions on major internal investments are being shelved until this CEO thing gets fixed.

Again, analyst downgrades and employee uncertainties are near-term concerns only and can even work in investors' favor for those willing to buy on the dips. But the need to get moving on naming its next CEO has been expedited by Microsoft's decision to acquire Nokia's (NYSE: NOK  ) devices and services unit, in a couple of ways.

Long-term impact
It was only a week after Ballmer dropped his retirement bomb that Microsoft announced it would acquire Nokia's devices and services unit, for what today is valued at about $7.4 billion. Before Microsoft opted to go all in with its transition to mobile devices, its Windows Phone OS was already beginning to make serious inroads, both here and abroad.

Now firmly entrenched as the No. 3 OS in the U.S., Windows Phone is really taking off overseas. With nearly 10% of the OS market in Western Europe, Microsoft has nearly caught No. 2 OS provider Apple in the region. In fact, Windows Phone has overtaken iOS in Italy and has matched Apple's market share in Spain.

As for the acquisition, not surprisingly Nokia shareholders overwhelmingly approved the deal last week, and now word has it that the European Union is "expected to clear the deal without conditions." With the Nokia acquisition nearly done, Windows Phone gaining traction, and Microsoft's blowout first day of Xbox One sales complete -- an estimated 1 million units were sold the first day -- the stars are aligning in all the right places.

Final Foolish thoughts
Microsoft is in the midst of company-altering changes. Whether it's new business lines showing signs of explosive growth or its transition to a device-first company, wouldn't it be nice to have Microsoft's new CEO in place now to assimilate the changes, rather than catch up later? The year Ballmer offered Microsoft to find a suitable successor was a nice gesture, but it doesn't fit with today's reality.

For Microsoft, the time to name a new CEO isn't next year, or even next month. It's now.

An under-the-radar mobile alternative
Want to get in on the smartphone phenomenon? Truth be told, one company sits at the crossroads of smartphone technology as we know it. It's not your typical household name, either. But it stands to reap massive profits no matter who ultimately wins the smartphone war. To find out what it is, click here to access the "One Stock You Must Buy Before the iPhone-Android War Escalates Any Further."

Read/Post Comments (1) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2740860, ~/Articles/ArticleHandler.aspx, 9/29/2016 2:47:09 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 4 hours ago Sponsored by:
DOW 18,339.24 110.94 0.61%
S&P 500 2,171.37 11.44 0.53%
NASD 5,318.55 12.84 0.24%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/28/2016 4:00 PM
MSFT $58.03 Up +0.08 +0.14%
Microsoft CAPS Rating: ****
NOK $5.74 Up +0.03 +0.53%
Nokia CAPS Rating: **