The acquisition that cost Steve Ballmer his job

The acquisition that cost Steve Ballmer his job

BY NATHANIEL MOTT 
ON MARCH 5, 2014

Steve Ballmer, the former chief executive of Microsoft, fought to make the previously software-focused company into a successful hardware-maker. Under his tenure the company introduced the popular Xbox console, shipped multiple versions of the unpopular Surface tablet line, and acquired Nokia’s phone-making business to finally compete in the global smartphone market.

Now it seems that his commitment to hardware cost Ballmer his job. Bloomberg reports that he repeatedly fought with Microsoft’s board over the Nokia acquisition, which ultimately led to the hunt for a new chief executive. (Satya Nadella, the board’s pick, officially assumed the role in February.) The board’s concerns reflected those of essentially every other industry observer: should Microsoft only focus on software, or should it also make hardware?

Microsoft’s board believed that it should continue to focus on software. Bloomberg’s report claims that many on the board, including Microsoft founder and then-chairman Bill Gates, opposed the company’s shift into smartphone manufacturing. The ensuing conflicts, during which Ballmer reportedly screamed at the board, led to his fall into disfavor.

Ballmer maintains that Microsoft needs to become a hardware-maker. Speaking at the University of Oxford on Tuesday, he said that his biggest regret is that Microsoft “didn’t put hardware and software together quicker” to compete in the nascent smartphone market that arose in the early-aughts. It seems that being ejected from the leadership role at the company for which he’s worked since 1980 hasn’t shaken Ballmer’s belief in hardware.

The board eventually agreed to acquire Nokia’s phone-making business for $7.2 billion in September. The conflict that pitted a long-time chief executive against his board of directors ended in a compromise that left everyone unhappy: Ballmer was forced out of the company he loved, Microsoft’s board supported the company’s shift to hardware, and Nadella has been tasked with picking up the pieces.

Reactions from around the Web

Computerworld’s Preston Gralla finds some justice in Ballmer’s firing:

But although the tantrum may ultimately have led to Ballmer’s firing, it was only a precipitating factor, and not the main cause. After all, Ballmer has been throwing tantrums for many years. No one at Microsoft seemed concerned about them until the company ran into problems. As long as the company was riding high, the board, Gates, and everyone else at Microsoft was only too happy to let Ballmer be Ballmer, which meant putting up with his temper.

There is some poetic justice in Ballmer’s tantrum leading to him being let go, though. For once, the bully got bullied.

The New York Times recounts Microsoft’s recent losses:

Rivals like Google and Facebook have so far outmaneuvered Microsoft in new areas of technology, as people get access to content and software through the Internet and on connected devices like tablets.

Companies like Apple and Samsung also now dominate the smartphone industry. In contrast, Microsoft’s own efforts through its Windows Phone operating system have failed to garner much attention from consumers worldwide.

The New Yorker notes that, even though Ballmer had a plan for Microsoft’s future, Nadella will be forced to find his own way:

Over the past couple of years—under Ballmer, no less—Microsoft has begun to articulate a fairly credible vision of its current ideal world for users. It has failed, however, to flesh out that vision enough to convince people to abandon their perfectly comfortable, increasingly Apple- or Google-centric existences on their phones and in the cloud. This makes Nadella’s challenge all the more profound: he cannot merely finish constructing the world for which he’s been handed the blueprints; instead, he must begin to imagine a wholly new one.

Pando weighs in

Pando editor Adam Penenberg called Ballmer “the worst CEO ever” and years earlier wanted to write a story about it:

Several years ago I attended a magazine editorial meeting and pitched what I thought was a slam dunk story idea.

‘Picture this,’ I said. ‘The cover of the magazine with a photo of Steve Ballmer looking all huffy and mad. The caption: The. Worst. CEO. Ever.’

Nervous laughter faded to silence. Finally an editor said, ‘Um, Adam, Microsoft is a big advertiser.’

Pando contributor Kevin Kelleher was less certain that Ballmer’s departure would be good for Microsoft:

When Ballmer leaves, the centrifugal force that held the disparate divisions together may well go with him. Microsoft’s board may claim it will continue in the direction Ballmer started, but it could also be that Ballmer’s departure is the first in a series of developments that will end up with the company broken up.

Breaking up Microsoft is an idea that has floated around for years, even in the monopoly days, but it’s been gathering steam on Wall Street in recent months. Microsoft’s cheap valuation (3 times future sales, 11 times future earnings) is low enough to draw the attention of activist investors. In April, a Goldman analyst suggested a breakup as a possible scenario. A couple of months later, a Nomura analyst made a good case for it to happen.

The jump in Microsoft’s shares Friday might say less about the post-Ballmer era and more about the value of Microsoft in pieces. And so Microsoft’s next CEO may not be someone skilled at uniting its myriad businesses, but rather in selling them off. Or it could be a number of CEOs. Frustrated Microsoft investors are getting what they’ve wanted for years: A Microsoft without Ballmer. That post-Ballmer Microsoft, however, may look very different from what many have imagined.

 

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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