Paul Allen: Microsoft’s next chief executive should consider spinning off consumer businesses including search advertising and the Xbox games console

October 31, 2013 6:40 pm

Microsoft urged to spin consumer business

By Stephen Foley in New York and Richard Waters in San Francisco

Microsoft’s next chief executive should consider spinning off consumer businesses including search advertising and the Xbox games console, according to the private investment vehicle of Microsoft co-founder Paul Allen. Mr Allen, who started the company with Bill Gates in 1975 and still holds a $2bn stake, is “intrigued and interested” by forthcoming changes, said Paul Ghaffari, who managesthe tech investor’s $15bn fortune.Mr Ghaffari, chief investment officer of Mr Allen’s family investment office Vulcan Capital, said thesuccessor to Steve Ballmer ought to perform radical surgery on Microsoft and concentrate on corporate customers.

Speaking at the Financial Times Investment Management Summit in New York, Mr Ghaffari said the overwhelming majority of Microsoft’s earnings were generated by selling software and services to business customers.

“The search business and even Xbox, which has been a very successful product, are detracting from that. We would want them to focus on their best competencies,” he said.

“My view is there are some parts of that operation they should probably spin out, get rid of, to focus on the enterprise and focus on the cloud.”

The Microsoft board has shown a new “receptivity to getting outside views,” Mr Ghaffari said, adding that thesearch for a successor to Mr Ballmer was being handled well.

If the board opts for rumoured candidate Alan Mulally, currently chief executive of Ford, Mr Ghaffari suggested he be paired with another executive with technology product experience. Other shareholders have questioned the recruitment process, including the issue of whether Mr Gates may circumscribe future strategy.

Mr Ghaffari, a hedge fund industry veteran and former portfolio manager at Soros Fund Management, was hired by Mr Allen in 2010 to run his eclectic mix of investments, which range from sports teams and space travel to real estate and US tech stocks.

Mr Ghaffari also revealed that he hoped to plough some of Mr Allen’s fortune into Twitter’s initial public offering. Vulcan analysts attended investor presentations in New York this week, and predicted the flotation would get “a little bit crazy”.

Twitter has a strong platform for growing ad revenue, he said, “and they’ve just begun . . . If Google is now in its fourth or fifth inning and Facebook is now in the second or third inning, Twitter is barely in the first inning,” he said: “I hope we get some shares.”

Steve Ballmer announced in August that he would step down as chief executive of Microsoft after 13 years at the helm, in what was seen as an admission that the PC pioneer lacks the leadership needed for the mobile era. He had come under pressure after a faltering start for Windows 8, Microsoft’s attempt to make an operating system that spans both PCs and tablet devices.

ValueAct, an activist investment firm, took a stake in the company and has pushed for board representation. The company’s most recent quarterly earnings were buoyed by computer shipments to business customers, even as PC sales to consumers declined.

Two years ago, Mr Allen revealed that Bill Gates had tried to buy out his stake in the company for $5 a share when he left in 1982, and that his own offer to sell for $10 was turned down.

The investment went on to make him one of the richest men in the world, with Mr Allen since selling most of his shares to fund a broad investment portfolio, the purchase of professional basketball and football teams and his philanthropic activities.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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