Hedge fund manager calls for Microsoft chief Steve Ballmer to step down

The head of a hedge fund which holds a minority stake in software giant Microsoft has called for the company’s chief executive Steve Ballmer to step down, saying he is stuck in the past and at best a “caretaker”.

The call comes alongside criticisms from tech analysts that Microsoft is falling behind in terms of innovation, with its Windows Phone solution still failing to gain significant ground.

Greenlight Capital head David Einhorn, who gained recognition for predicting the bankruptcy of Lehman Brothers before its collapse in September 2008, said at the Ira Sohn Conference overnight that “Ballmer is stuck in the past”.

He backed up the comments by pointing to remarks from Ballmer which said he doesn’t believe Apple to be a significant threat, and accused Ballmer of missing out on opportunities to compete with Apple on areas such as tablet computers.

Greenlight owns about nine million shares of Microsoft (worth about $US200 million) and manages $9 billion worth of assets. The fund is also reportedly in talks to bid for a controlling stake of the New York Mets.

Microsoft has certainly made some headway in the past 10 years, with its relaunch of the Bing search engine proving relatively successful so far and the critical success of Windows 7 translating into substantial sales.

But it has also suffered largely due to the rise of Apple. It’s answer to the iPod – the Zune – never took off in America in a large way and never even made it to Australia, while its Windows Mobile reboot last year was much too late to make any difference.

While the growth of the company’s Xbox division has been one of the company’s strongest points, last week it was announced one of the four original founders of the console resigned.

While this is unlikely to have a significant impact on the company’s day-to-day operations, it nevertheless highlights Einhorn’s criticisms that innovation within Microsoft remains weak.

“It’s time for Microsoft’s board to tell Steve Ballmer, ‘All right, we see what you can do, let’s give so-and-so a chance,'” Einhorn said. “His continued presence is the biggest overhang on Microsoft’s stock.”

Ballmer is the company’s second largest shareholder and took over when company co-founder Bill Gates resigned. His tenure has been received with mixed reviews – last year the company docked half of his potential bonus for failing to control the mobile space.

Telsyte research manager Foad Fadaghi says there is definitely a perception that Microsoft has fallen behind.

“I think most investors have a right to be able to influence the companies they invest in, but sometimes the rock-star status of those managers makes it difficult to contemplate. Sometimes it’s essential for a manager to stay in place.”

Fadaghi points to Apple chief executive Steve Jobs, who was ousted from the top job back in the 1980s, but then regained his position in the late 1990s and drove the company to nearly a decade of record results.

“There are definitely some challenges around innovating there. It’s changing very quickly, and I think they’re finding it hard to compete with the likes of Apple outside of their core strength of the personal operating system.”

“Mobile is definitely one area where they are falling behind the eight ball a little bit, and it will take a large amount of inertia for them to become dominant.”

However, there may be hope – recent figures from Gartner show Microsoft may hold the top spot in the mobile operating system world due to its recent tie-up with Nokia, which will now produce all of its handsets with Windows Phone pre-installed.