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By RJ Towner

Dividend Growth Newsletter portfolio holding Microsoft's (NASDAQ:MSFT) long-time CEO Steve Ballmer announced that he'll be retiring within the next year. Despite solid revenue and earnings growth throughout his tenure, investors have called for his job for years as rival Apple (NASDAQ:AAPL) stole the spotlight in the tech world.

The Bad

While the late Steve Jobs will be known for his hits, Ballmer will be best known for his misses. After Apple dropped the iPod, Microsoft came to market with the Zune after the war was long over. Apple then released the iPhone, and Microsoft wasn't ever able to fund a credible competitor in the United States, but it did manage to lose money on the Kin. Then the iPad launched, and although Microsoft released a tablet years earlier, it simply never caught on like the iPad did. Microsoft attempted to compete again with the Surface, but sales of the tablet have been lackluster to say the least. Microsoft even beat Apple's long-rumored iWatch, releasing Smart Watches for MSN - another failure. Let's not forget the ill-fated Windows Vista - an operating system universally abhorred for its poor performance and security issues. In our eyes, the mediocre Vista product opened consumers to the idea of switching to Macs like never before, and Microsoft may have thrown Apple another fat pitch if Windows 8 fails to accumulate much share.

The Good

Of course, not everything Ballmer did was a failure. Windows 7 became one of the best-selling products in Microsoft's history. The firm also nudged Sony (NYSE:SNE) off its pedestal as the top name in console gaming with the launch of the Xbox and the Xbox 360 (all-time unit sales for PS3 and Xbox 360 are neck and neck). Microsoft's future in console gaming looks strong thanks to the upcoming Xbox One and its Steven Spielberg-produced Halo TV show. Microsoft also maintained its robust business operations, and Bing has started to take some modest market share from Google (NASDAQ:GOOG). Additionally, Windows has quietly become the third-largest smartphone operating system in the world - though the growth isn't coming from the US.

The Reality

The reason why Ballmer garners such a negative perception doesn't have as much to do with the performance of Microsoft as it has to do with the superior performance of Apple. When Ballmer became CEO in 2000, Microsoft was the dominant force in personal computing, and the premier tech giant in the world, while Apple was on the brink of irrelevancy. Over the course of the next decade, Apple became the premier tech company in the world, hitting home runs on seemingly every product, while Microsoft appeared to be the slow, dinosaur competitor. In essence, Ballmer missed the shift to mobile, which was easily the most important event of his tenure. Investors dislike Ballmer for what he didn't do, not necessarily for what he did.

Now What?

Steven Sinofsky was long assumed to be the man likely to replace Ballmer, but he left the company in November. With Microsoft aspiring to become a devices and services company, Julie Larson-Green, head of the Devices and Studio Entertainment Group, could be the successor. Her resume is impressive, but we aren't sure another internal hire is what Microsoft needs. The company has been long-accused of having a corporate culture that breeds in-fighting and sabotage, so it might be better for Microsoft to look outside the company for inspiration. Remember, this will only be Microsoft's third CEO, and likely the first that hasn't been with the company since the early days.

We've heard Scott Forstall's name thrown around, and he certainly would be an interesting, unconventional choice. Forstall spent years with Jobs first at NeXT and then at Apple, where he eventually became Senior Vice President of Software Engineering. After spending years with Jobs, Forstall apparently developed some Jobs-like tendencies, which led to battles between him and Apple's other famous designer, Jon Ive.

Forstall undoubtedly has the experience and design expertise that Microsoft could use, but the question is: will Bill Gates and the board be willing to make such a bold move? In our view ... probably not.

Virtually the entire tech world saw Apple and Google largely overtake Microsoft, but the board never made even the slightest inclination that Ballmer wasn't the man for the job. Forstall would be a huge hire for Microsoft, and it would set up a fantastic storyline between Microsoft and Apple.

Unfortunately, we're not confident it will happen. The new CEO will likely come from within, or be an agreeable personality that can be viewed as a consensus builder like Tim Cook.

Our Take

As much as we'd hate to say it, the market is probably right to cheer Ballmer's departure, if not simply for pumping some new lifeblood atop the organization. Ballmer's financial performance was by no means terrible, but he'll never be lumped in with other famous tech CEOs like Steve Jobs, Bill Gates, Larry Ellison or Mark Zuckerberg.

Regardless, we're happy to keep holding shares of this cash cow in the portfolio of our Dividend Growth Newsletter. Our valuation of Microsoft remains unchanged at this time.

Disclosure: I am long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: RJ Towner is Director of Research Development at Valuentum. AAPL, MSFT, and GOOG are included in our actively-managed portfolios.