The 57-year-old Steve Ballmer, who served the company for almost 13 years, will retire at a time when the company is struggling to compete with Apple Inc. (AAPL), Google Inc. (GOOG) and Facebook Inc. (FB) in the areas of Internet search, smartphones and tablets.
Ever since Steve Ballmer took over the reins of the company as CEO in Jan 2000, he faced some basic challenges. The company was unable to keep pace with the changing technology trends and generate growth like its peers.
Despite being one of the biggest brand names, Microsoft’s main business of making software for PCs is witnessing sagging demand. This can be attributed to the increasing customer shift toward tablets, smartphones and hybrids. According to recent reports from research firms Gartner Inc. (IT) and International Data Corp (:IDC), PC sales fell 11% in the second quarter of 2013 compared to the prior year due to an increased preference for tablets and other mobile devices.
Ballmer’s retirement announcement comes six weeks after Microsoft announced a complete reorganization of the company. A series of functional and executive changes were announced to help the company gain traction in the fast-growing mobile and cloud-computing markets.
Ballmer also responded to the changing dynamics by launching innovative products, but these efforts failed to reignite the company's growth. For instance, the Surface tablet, launched in 2012, has yet to catch up with its competitors. Also, Microsoft’s revamped mobile OS has been struggling in a competitive market dominated primarily by Android and iOS.
Microsoft’s new touch-based devices could supplement its growth in other areas, but competition from popular platforms by Apple, Samsung and others makes growth particularly difficult. Its recent faux pas with Xbox One is also likely to cost the company.
Thus, in all, despite Ballmer’s best efforts, the company has been unable to catch up with the changing dynamics. Currently, the company's valuation stands at $269 billion, which is less than half of its value when Ballmer came to power. This is an obvious reason for the shareholders to applaud Ballmer’s retirement. Soon after the CEO announced his retirement from the board, Microsoft's stock spiked 7.29% to $34.75.
We believe that restoring Microsoft’s position as well as shareholders' confidence will be an uphill task for Ballmer’s successor. A new CEO with strong focus on smartphones, web search and tablet computing might change the fortunes of the company.
Currently, Microsoft has a Zacks Rank #5 (Strong Sell).
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