That some investors are reportedly calling for the ouster of Microsoft (Nasdaq:MSFT) Chairman Bill Gates isn’t as much of a surprise as the fact that it took so long for people to do it.

Gates, one of the richest people in the world, has kept his distance from the Redmond, Wash. company since the beginning a decade, allowing his chosen replacement Steve Ballmer to bask in the spotlight while he focused on his philanthropy. Under Ballmer’s leadership, Microsoft has floundered.  Many have criticized him for being a day late and a dollar short to most of the major technology trends of over the past few years. In fact, Ballmer wrongly boasted that there was “no way” that the Apple (Nasdaq:AAPL) iPhone would get any significant market share. He just couldn’t foresee a world without personal computers.

“He completely missed the importance of the touch-screen phone,” noted David Pogue in a New York Times column in August.  “He missed the importance of the tablet, too.”

Complaints about Microsoft from investors have been voiced on CNBC and other financial media outlets for years. The company’s planned $7.15 billion acquisition of Nokia’s (NYSE:NOK) device business has reportedly angered shareholders even further. Activist investor ValueAct, which led the charge against Ballmer, reportedly wants the company to focus on cloud services and business software and not consumer technology, according to Bloomberg News.   

And where has Gates been during this time of upheaval? That’s hard to say. He has been selling about 80 million shares per year in pre-planned sales. Though Gates remains the largest individual investor in Microsoft, owning about a 4.5% stake, that is a fraction of the 49% position he had before the software giant went public in 1986. Gates promised to work with the board to find the company’s “next great CEO.” Ballmer certainly isn’t being rushed out the door.  His “retirement” is effective in 12 months.

As Reuters noted, three major shareholders want Gates to step aside as Microsoft chairman. While the aims of the Bill and Melinda Gates foundation are certainly noble, Gates’ focus hasn’t been on Microsoft’s investors. Shares of Microsoft have risen more than 20% over the past decade, underperforming rivals such as Apple (Nasdaq:AAPL) (which gained 4,236%) and Oracle (Nasdaq:ORCL), which is up +178%, as well as the S&P 500, which edged ahead by more than 68%.  Even IBM (NYSE:IBM), whose inability to foresee the PC revolution help lead to Microsoft’s birth, has done better, gaining more than 102%.

Though some pundits have argued that Microsoft needs Gates now more than ever, their arguments are not persuasive to some shareholders.  As Todd Lowenstein, a portfolio manager at HighMark Capital, which holds Microsoft, recently noted to Reuters,  Gates should have step aside long ago.

“Replacing the old guard with some fresh eyes can provide the oxygen needed to properly evaluate their corporate strategy,” the news organization quotes him as saying.

Though Microsoft is cheap, especially for a tech stock, trading at a price-to-earnings multiple of about 13,  this is a classic value trap. The company’s dividend, which yields 3.3%, isn’t a good enough reason to buy the stock.  Whomever replaces Ballmer, and perhaps Gates, has tough road ahead of them. 

Bottom Line

Activist investors are feeling that Microsoft is increasingly irrelevant in the modern world, which is why it's imperative for the board to bring in new leadership to guide the company in the post-PC era. Bill Gates' moment has past.

--Follow Jonathan Berr on Twitter@jdberr or at Berr’s World.

Disclosure - At the time of writing, the author did not own shares of any company mentioned in this article.


Related Articles
  1. Stock Analysis

    3 Resilient Oil Stocks for a Down Market

    Stuck on oil? Take a look at these six stocks—three that present risk vs. three that offer some resiliency.
  2. Economics

    Keep an Eye on These Emerging Economies

    Emerging markets have been hammered lately, but these three countries (and their large and young populations) are worth monitoring.
  3. Stock Analysis

    Is Pepsi (PEP) Still a Safe Bet?

    PepsiCo has long been known as one of the most resilient stocks throughout the broader market. Is this still the case today?
  4. Fundamental Analysis

    The Basics Of Corporate Structure

    CEOs, CFOs, presidents and vice presidents: learn how to tell the difference.
  5. Investing

    The ABCs of Bond ETF Distributions

    How do bond exchange traded fund (ETF) distributions work? It’s a question I get a lot. First, let’s explain what we mean by distributions.
  6. Investing

    The Top Businesses Nurtured By Y Combinator

    We look at the top startups that were incubated at Y Combinator, one of the world's most popular business incubator firms.
  7. Investing

    Why Perceptual Computing Is The Future 

    Perceptual computing will have a major impact on our future in the coming years. Here's why.
  8. Stock Analysis

    3 Stocks that Are Top Bets for Retirement

    These three stocks are resilient, fundamentally sound and also pay generous dividends.
  9. Investing News

    Are Stocks Cheap Now? Nope. And Here's Why

    Are stocks cheap right now? Be wary of those who are telling you what you want to hear. Here's why.
  10. Investing News

    4 Value Stocks Worth Your Immediate Attention

    Here are four stocks that offer good value and will likely outperform the majority of stocks throughout the broader market over the next several years.
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!