Microsoft Should End The Steve Ballmer Experiment

| About: Microsoft Corporation (MSFT)
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Investors who are holding their breath on the hopes that software giant Microsoft Corporation (NASDAQ:MSFT) will ever emerge out of its technological rut against Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) should consider investing in some scuba gear to go find that ship that has long sailed. Today's version of Microsoft is a shell of what it once was in the mid- to late 90s. And if the company cares about its future, it must finally come to terms with what the Street already knows -- Steve Ballmer is no longer the guy to lead. After this most recent earnings disaster, it's worth asking if he ever was.

The Street wasn't expecting much from Microsoft, given the brutal state of the eroding PC industry. But Microsoft managed to miss on every category that mattered. For instance, although bulls will argue that the company grew revenue to $20 billion, or 6% year over year, who can cheer that sales arrived 4% lower than an already reduced projection? Surprisingly, Microsoft managed to miss in its strongest-performing business segment, which posted 15% year-over-year growth.

Can we also stop making excuses such as "the company is in transition?" I've been hearing this for the past five years. These "restructuring" claims often follow brutal quarters. Look, I'm not here to beat up on Ballmer and pretend that his tenure up to this point has been a complete disaster. But I believe investors who insist on prolonging what has been a failed experiment by Microsoft's board of directors are doing a disservice to themselves.

While Ballmer has done a decent job of maximizing Microsoft's profits, he's also done very little to propel the company forward technologically or strategically. Has anyone bothered to ask why is this company still so focused on its low-growth legacy businesses? Ballmer has instead aborted various projects that could have generated the level of creativity consumers want. Like Apple, Google, and Samsung (OTC:SSNLF), Microsoft could have produced must-have items. But nobody's buying them.

Here, too, I will expect the Microsoft bulls will be angered by this statement. Who can really disagree that Microsoft has been slow to adapt to the booming mobile device market? While Apple and Google were building up their capabilities in research and development, Microsoft remained focused on its two main revenue generators -- Windows and Office. Once the company finally caught on and decided to build its Surface tablet and improve Windows Mobile, it was too late.

The Street never bought into the hype that Microsoft could gain meaningful traction against heavyweights like Samsung. In fact, even Nokia (NYSE:NOK), which has tied itself at the hip to Microsoft, has yielded very little in terms of market share results for Microsoft's mobile OS market share. This is despite Nokia's recent volume shipment improvements. What this means is that, in many respects, this partnership between Nokia and Microsoft has failed.

Now, before you disagree, consider that Microsoft's Surface tablet experiment has not exactly carved out a new niche in mobile either. How else can you explain the $900 million write-down in the recent quarter? I won't disagree that $900 million is just "chump change" for a company that has close to $80 billion in cash, but let's not forget that this write-down comes on the one-year anniversary of the $6 billion write-down for aQuantive -- another failed experiment.

Today, on the heels of the company's fourth-quarter earnings results, we've learned that Microsoft's Surface Pro tablet was another failed experiment. Still, Ballmer is asking for more time. But he's has had plenty of it -- 13 years and counting. I can't say that during that span there has been one experiment that has worked. And before you say Xbox, the console was already in development while Bill Gates was still CEO of the company.

Since Ballmer took over, in what category has Microsoft lead that it had not already established a lead? For instance, we can agree that the company poorly underestimated the search market and allowed Google to dominate the industry. Bulls will quickly defend Bing, but it arrived a full decade after Google had already seized the search market from Yahoo (YHOO).

Now there's a browser war where Internet Explorer is under attack by Google Chrome and Mozilla's Firefox. There was a point when Hotmail was one of the best free email services available. Today it can be argued that Google's Gmail has taken the top spot, with Yahoo not too far behind. The point is that under Ballmer, it's become easier to count Microsoft's failures than its successes.

Microsoft bulls will attack me for this. But understand that I have no problems with anyone choosing to cheer on a company on the basis of faith. While I don't recommend faith as a sound investment thesis, who am I to judge? But to dismiss a CEO's failed track record and still be disappointment when expectations fall short is the fault of the investor. Prolonging investors' agony is the fault of Microsoft's board, which has failed to do what's right. Here, too, I'm not holding my breath.

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.