Is Microsoft CEO a Charlie Brown, tumbling embarrassingly into a heap as Lucy repeatedly snatches the football away at the last minute. Hedge-fund manager David Einhorn of Greenlight Capital, famous for spotting trouble early at Lehman Brothers Holdings, thanks so. Einhorn, whose fund owns 9 million Microsoft shares, told the annual Ira Sohn Investment Research Conference in New York last week:
It’s time for Microsoft’s board to tell Steve Ballmer, “All right, we see what you can do, let’s give so-and-so a chance.” His continued presence is the biggest overhang on Microsoft’s stock… He is stuck in the past. He has allowed competitors to beat Microsoft in huge areas, including search, mobile communications software, tablet computing and social networking. Even worse, his response to these failures has been to pour tremendous resources into efforts to develop his way out of these holes.
As the U.K.-based Independent reported, “Ouch, ouch, ouch.” It added: “Charlie Brown is one of life’s non-achievers, and Mr Einhorn’s attack hit a nerve because investors have watched Microsoft under Mr Ballmer fail again and again to gain traction in any of its new products and services.” Microsoft stock, which closed at $24.76 May 27, is about where it was a year ago, three years ago, five years ago, a decade ago, and in 1998.
Ballmer was en route to China when Einhorn unloaded on him. Microsoft set up shop in China in 1992 and just moved Beijing employees into a new building that cost $400 million. Software piracy remains rampant in China. As reported in the Wall Street Journal, Ballmer “noted that Microsoft’s total revenue in China, population 1.3 billion, is less than what it gets in the Netherlands, a country of fewer than 17 million.”
Ballmer said that despite the fact the personal-computer market in China this year will be about as large as the marketed in the United States, Microsoft’s revenue in China will be only about one twentieth of its U.S. revenue. Yet Microsoft continues to invest in China. Earlier this year, a Microsoft executive said the Chinese head count will grow by about 10% (about 300) this year.
So should Ballmer take a hike? The British press doesn’t think so. The Independent quoted Shelly Palmer, a technology consultant and founder of Advanced Media Ventures. “David Einhorn would like to see the shares move, I get that. But this is a personal attack, rather than a solution. Steve Ballmer is not saying anything that doesn’t make sense.” Said the newspaper: “Mr Einhorn landed some cruel blows against Microsoft’s Charlie Brown this week. Ultimately, though, his fellow shareholders may ask, how potent a rallying cry is “let’s give so-and-so a chance”?
Here’s the verdict of the Lex columnist at the Financial Times:
Mr Ballmer has delivered enviable financial results. Microsoft’s average annual revenue and operating profit growth under his tenure are 10 per cent and 8 per cent, respectively. The company is still growing at a double-digit pace today. Mr Einhorn may be right to say 10 years is plenty for any boss. Yet Mr Ballmer took a company with $23bn in sales and tripled them. He is no Charlie Brown.