Microsoft To Start A Crucial Transition With Ballmer's Exit

Investor's Business Daily

After more than a dozen years as chief executive at software leader Microsoft (MSFT), but facing growing criticism for reacting slowly to the mobile trend and more, Steve Ballmer said Friday he'll step down within a year.

Investors applauded, with Microsoft shares rising 7.3%.

Microsoft's board has set up a committee to search immediately for a new CEO. It will be chaired by former Symantec (SYMC) CEO John Thompson, the board's lead independent director, and will include co-founder and Chairman Bill Gates.

"The prospect of a new CEO at Microsoft is a net positive," Bill Whyman, an analyst at International Strategy & Investment, wrote in a research note Friday. "Change is needed ... .

No Obvious Successor

There is no obvious internal candidate, unlike in 2000 when Gates stepped down as CEO and named longtime right-hand man Ballmer to take his place.

The lack of a succession plan at Microsoft worried investors for years, Michael Turits, an analyst at Raymond James, wrote in a research report.

"So today's announcement removes a major overhang," he said. "However, the field of strong internal candidates is narrow, in our view.

He says the strongest internal candidate is Satya Nadella, head of Microsoft's cloud and enterprise group.

Others say Microsoft must look outside the company.

"I find it difficult to think this individual will come from inside Microsoft," Trip Chowdhry, analyst with Global Equities Research, told IBD. "It has to be an external candidate. They need a person who understands the innovation equation, who works well with developers and who is driven by passion, not politics.

Whyman says Kevin Turner, Microsoft's chief operating officer, is the top — but a flawed — internal candidate.

"... he is not a technologist, which is atypical for Microsoft and many leading tech companies," Whyman wrote.

He names as a possible external candidate Mark Hurd, president of Oracle (ORCL) and former CEO of Hewlett-Packard (HPQ).

But any outside candidate will "face unique challenges in changing the culture, and quickly mastering an exceptionally large and complicated company, with nearly 100,000 employees," Whyman wrote. "Leading internal candidates have departed, and external candidates, even those steeped in the tech sector, will have to confront massive strategic questions about the most diverse tech company in the world.

Jack Gold, founder of research firm J. Gold Associates, favors an outsider.

"They need to bring in a real visionary," Gold told IBD. "They need a real leader, someone who can look at things different and not drink the same Kool-Aid. "Unless such a leader is found, Microsoft is in for a continued, albeit slow, decline.

Ballmer gets credit for steadily building up the server, Xbox and cloud units. But there have been many notable flops. Microsoft has flailed continually in the smartphone and tablet fields against Apple (AAPL) and others. Its latest Windows PC operating system, Windows 8, has confused users with a touch-screen interface used on mobile devices. Its Bing search engine remains a distant rival to Google (GOOG). Ballmer last month announced plans for a sweeping reorganization, partly to address the company's slow response to mobile computing.

John Challenger, CEO of outplacement firm Challenger, Gray & Christmas, said Ballmer "in some ways is unfairly blamed for the firm not being the Microsoft of the '80s and '90s, but you can't continually grow in leaps and bounds."

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