6/28 Kelly Letter Topics
Weekly market review
World Bank's forecast
Durable goods up
Fed's forecast
Rising joblessness
Don't trade Jackson
Too-quick VIX drop
Two months, no action
Selling into strength
Trends within oil trend
America's great highways
2008 EDITION
Much has changed; good investing has not
The Neatest Little Guide to Stock Market Investing, 2008 Edition
The Wall Street Journal ran a nice article on Microsoft's Bill Gates and Steve Ballmer yesterday. It was offered as a backdrop to the further departure of Mr. Gates on June 27 from his already reduced role at the company. The article, like many others on Microsoft, never asks the hard question that's central to seeing the software giant's future: Is Steve Ballmer another Bill Gates?
Look at the record.
Under the stewardship of Bill Gates, MSFT split eight times and rose 53,000% from early 1986 to early 2000. Under the stewardship of Steve Ballmer, MSFT split once and lost half its value since early 2000. Look at the sorry chart.
It has grown earnings under Steve Ballmer, but they haven't boosted the stock price because forward-looking investors refuse to pay a high multiple (price/earnings ratio) for a stock with a steadily dimming future. Value investors say Microsoft is a great bargain these days, better than when Mr. Ballmer took over, but they may be missing that it's cheap for a reason.
That reason is that Steve Ballmer has done nothing since he took over. What's new at Microsoft? There are marginal differences, but for most casual users Microsoft puts out the same software with different version numbers today that it put out eight years ago. Mr. Ballmer completely missed:
The importance of internet search.
That the center of computing was moving from the desktop to the internet, and that the migration would make all computer users platform agnostic. Increasingly, all that matters is that a computer can get online. That being the case, why would anybody choose clunky Windows over elegant Macintosh?
That people stopped needing any new features in their OS and productivity software about ten years ago, and had grown wise to the meaningless upgrade cycle.
That the only new capability in productivity would be putting it online, and that Microsoft needed to face that reality sooner than later or somebody else would get the edge. Microsoft took its eye off that ball, and Google picked it up and ran with it all the way to a goal called gDocs.
That online video was going to be a big deal. Again, Google beat Microsoft to YouTube and now controls almost 40% of the online video market. The number two site commands just 4%, Microsoft about 3%.
And so on. It's hard to see what Mr. Ballmer has been doing these past eight years. The Xbox has been successful, but that's hardly Microsoft's core income center. The company has lost its iron grip on computing since Mr. Ballmer slipped his hand into the control glove.
This is not the first time we've seen this. Think back: Steve Jobs was replaced by John Sculley at Apple, then had to return to save the sinking company. It took less than three years to see that Dell's Kevin Rollins was a disaster, and to get Michael Dell back in charge to resurrect his namesake firm. The man who put Starbucks on the map, Howard Schultz, had to return in January after an eight-year absence to get the coffee shop hot again. Charles Schwab sent David Pottruck packing in 2004 and re-took the helm at his namesake firm:
"I'm sorry," Pottruck remembers Schwab saying, "but the board has met and decided that they have lost confidence in the direction of the company and in your leadership. We've decided to make a change and have me come back to the office." Effective immediately, Pottruck was to step down, and Schwab would become CEO again. -- full Fast Company article
And so on.
We'll probably never witness such a dramatic return for Bill Gates. He hasn't seen fit to right the ship in the past eight years, why start now? He's off to greener pastures.
Microsoft shareholders are sure going to miss him.
