Windows 8 Hardly Hurts Ballmer's CEO Job Security at Microsoft


It is very easy to say that problems with Microsoft Corp.'s (NASDAQ: MSFT) Windows 8 are the last straw for investors and the firm's board as the future of CEO Steve Ballmer gets measured. But Ballmer's recent track record is reasonably good.

Windows 8 may not have hit its download target, but sales have moved above 100 million. By releasing updated versions of the software to address concerns, Ballmer has gotten in front of the problem, although it is one many people believe should never have existed.

Windows 8 was released into a world in which PC sales rates have gone into reverse. Critics argue that Windows could have pulled PC sales higher. On the other hand, consumer migration to tablets and smartphones almost certainly would have happened no matter what Microsoft did. The remaining criticism is that Microsoft has left the mobile OS business to Google Inc.'s (NASDAQ: GOOG) Android and Apple Inc.'s (NASDAQ: AAPL) iOS. However, Android does not make any money, so its value to Google cannot be assessed yet.

Ballmer has managed to effectively guard Microsoft's two other long-term franchises. Each has a large number of competitors anxious to get a portion of markets that Microsoft has proved are highly profitable. In Microsoft's fiscal third quarter:

The Microsoft Business Division posted $6.32 billion of revenue, an 8% increase from the prior year period. Adjusting for the net recognition of revenue related to the Office Upgrade Offer and Pre-Sales, Microsoft Business Division non-GAAP revenue increased 5%. During the quarter, we launched the new Office, enhancing productivity and the user experience through new mobility, social, and cloud features.

The Server & Tools business reported $5.04 billion of revenue, an 11% increase from the prior year period, driven by double-digit percentage revenue growth in SQL Server and System Center.

Ballmer has been blamed for keeping the company in the online portal and search businesses. But it cannot afford to hand this business to Google. Its venture with Yahoo! Inc. (NASDAQ: YHOO) has a market share in the United States of more than 30%, a number many analysts believed was beyond its reach. Search remains strategically critical, if for nothing else as a tool to help online adoption of Windows mobile. This part of Microsoft did better than expected recently:

The Online Services Division reported revenue of $832 million, an 18% increase from the prior year period. Online advertising revenue grew 22% driven by an increase in revenue per search.

Many other companies are struggling with declines in online revenue.

The final defense of Ballmer's recent tenure as CEO of Microsoft is the most compelling one. Its share price is up 35% over the past two years, while the Nasdaq is higher by 25%. And Microsoft shares have a 2.8% yield. That helps make the case for Ballmer stronger than the one against him.

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