Steve Ballmer has finally announced his departure from Microsoft Corporation (NASDAQ:MSFT) within the next year, and the stock was up by more than 7.3% on Friday as investors cheered the news. Ballmer’s departure was long overdue, and it’s a step in the right direction for Microsoft Corporation (NASDAQ:MSFT).
But the company is hardly out of the woods. Microsoft is in a tough position as it continues losing relevancy due to major technology trends like mobile and cloud computing. Ballmer’s exit was necessary, but not enough to merit a long position in Microsoft.
The rise and fall of Microsoft
Ten years ago, Microsoft Corporation (NASDAQ:MSFT) was the undisputed leader in the global technology business. The company had an almost monopolistic position in operating systems and productivity, thanks to Windows and Office. This meant not only big and growing cash flow for shareholders, but also an enormously valuable strategic asset.
Microsoft Corporation (NASDAQ:MSFT) was so comfortable, it could afford to follow the strategy of not trying to be the first to innovate, but the first to profit. This meant selling its own versions of new technologies as opposed to building new things from scratch.
The Netscape vs. Explorer example can be quite illustrative about how this used to function: By owning the operating system in the vast majority of computers around the world, Microsoft Corporation (NASDAQ:MSFT) managed to beat Netscape in spite of starting in second position in the browser race.
The company had the strategic and financial resources to sustain its leadership through the years, but it did not have the same innovative drive as Apple Inc. (NASDAQ:AAPL) and Google Inc (NASDAQ:GOOG). Even worse, Ballmer underestimated the risks coming from major industry trends, and that turned out to be a very expensive mistake.
Ballmer famously mocked the iPhone: “There is no chance that the iPhone is going to get any significant market share,” he said in 2007. He also called Google “…not a real company, it’s a house of cards.” Ballmer doesn’t allow his kids to use Apple Inc. (NASDAQ:AAPL) or Google Inc (NASDAQ:GOOG). That’s not exactly the kind of open-mindedness you would expect from an innovative leader in the tech industry.
Ballmer’s dismissals didn’t stop Apple Inc. (NASDAQ:AAPL) and Google Inc (NASDAQ:GOOG) from changing the computing industry forever. The iPhone and the iPad were two major driving forces in the mobile revolution, and Google Inc (NASDAQ:GOOG), with its free Android operating system, made it possible for different low-cost hardware manufacturers to bring smartphones and tablets to corners of the world were Apple Inc. (NASDAQ:AAPL) products are still too expensive.
According to IDC, tablet shipments will exceed those of portable PCs in 2013, and PC demand will be showing its second-consecutive yearly decline this year. The research firm expects tablet shipments to outpace the entire PC market, portables and desktops combined, by 2015.
While Apple Inc. (NASDAQ:AAPL) is still the leader in the high-end segment of the tablet market, lower-cost Android devices are rapidly gaining market share. Microsoft Corporation (NASDAQ:MSFT), on the other hand, has been facing disappointing sales and inventory writedowns due to lackluster demand for its Surface tablets.