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SEATTLE (Reuters) - Microsoft Corp's board stood behind Chief Executive Officer Steve Ballmer on Thursday, defending its longtime leader after influential hedge fund manager David Einhorn touched off a debate by calling for his dismissal.
The fund manager, who made his name warning about Lehman Brothers Holdings Inc's financial health before the investment bank's collapse, accused Ballmer on Wednesday evening of being stuck in the past, launching the sharpest attack yet by a high-profile investor against the company's leadership.
Einhorn's comments, which echo what some investors have said for some years in private, caused a stir on Wall Street and helped Microsoft shares climb 2.4 percent on Thursday to $24.76.
"His continued presence is the biggest overhang on Microsoft's stock," Einhorn told fellow fund managers at the annual Ira Sohn Investment Research Conference in New York.
Microsoft's nine-person board, including Chairman and co-founder Bill Gates, supports Ballmer, a source close to the board told Reuters on Thursday.
Microsoft -- the largest U.S. company by market value in the late 1990s -- has been overtaken by Apple Inc and International Business Machines Corp in market value, and is no longer seen as a dominating force in technology after a failure to capitalize on Internet and mobile markets.
Before Thursday's gain, the stock had been down 6 percent in the past two weeks after Microsoft agreed to pay $8.5 billion for Internet phone service Skype, a move that mystified many investors.
Einhorn said it was time for Microsoft to consider strategic alternatives for its money-losing online business, which has so far failed to win share from Google Inc.
"Clearly, some people are calling for a change," said Sid Parakh, analyst with McAdams Wright Ragen. "If you look at the financial performance, that's been fine. But I think the issue is broader than that.
"If you look at search, mobile, tablet, these are areas they should have been investing in, and they have -- but they weren't able to get it right," he added. But: "If there was any reason to believe the board was not with Steve, it would be a different situation. But the board seems to be behind Steve."
The online services unit, which runs the Bing search engine and MSN Web portal, had a loss of $726 million last quarter and has now lost $7 billion in four years.
"What it boils down to is that Microsoft has had a load of initiatives which haven't shown traction yet," said one U.S. equity fund manager at an investment house featuring on the list of Microsoft's top 40 largest shareholders. "The most recent one is to buy Skype, and the perception on that is that it is overvalued. We won't know what revenue synergies are until two, three years down the road."
"Microsoft created the platform on which Google and the Internet can go forward, and it's not exactly yesterday's technology; but they do have to connect more with the mobile computing world and they haven't really done that.
BGC Partners Colin Gillis credited the rise in Microsoft's stock price Thursday to "fast money," or investors looking to take advantage of an undervalued stock.
"It's on. David Einhorn likes to shake things up," Gillis said. As for Microsoft's stock staying flat over a decade, "the question is, is it because of Ballmer, or is it because people are concerned about a post-PC era?"
Reporting by Bill Rigby, Edwin Chan, Sinead Carew and Paul Thomasch, writing by Edwin Chan; Editing by Gerald E. McCormick, Dave Zimmerman