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Steve Ballmer deserves more credit than he’s getting

Three years ago I was standing in line at a grocery store outside Seattle. I don’t think most people noticed the hulking bald man in front of me, but as a business writer, I did: It was Microsoft (NASDAQ: MSFT)  CEO Steve Ballmer.

I didn’t know whether to be impressed or shocked. Ballmer, who’s worth US$15 billion and pulls down nearly US$1 million a day in Microsoft dividends, is humble enough to buy is own groceries (good), but apparently his time running one the world’s largest companies isn’t valuable enough to have someone buy his groceries for him (bad).

The rest of the world’s opinion of Ballmer is less ambiguous. After announcing plans to retire last week, the postmortem of Ballmer’s 13-year tenure running Microsoft has been uniformly negative. Under Bill Gates, Microsoft brought the world the PC and turned janitors into millionaires. Under Ballmer, it brought us the Zune and a cumulative shareholder return of negative 23%.

The criticisms are mostly right. Microsoft gave up the Internet to Google (NASDAQ: GOOG)  and mobile to Apple (NASDAQ: AAPL) . In each, it had ample resources but a lack of vision. Ballmer led a culture that chose fat and happy over hungry and innovative. The company deserves a new leader.

But criticism without context can be misleading. The two common grumbles thrown at Ballmer — poor shareholder returns and a failure to plant a foot in new markets — have another side to them.

Microsoft’s dismal shareholder returns under Ballmer are entirely due to timing. Ballmer took over on Jan. 13, 2000, literally days away from the peak of the dot-com bubble. Microsoft traded at 72 times earnings the day Ballmer was promoted to CEO. Adjusted for inflation the company had a market capitalisation of US$817 billion. For perspective, the current market caps of Microsoft, Google, and Apple combined isn’t much higher, at around US$1 trillion. No CEO could live up to the expectations Ballmer stepped into. Dismal shareholder returns were certain before he moved into his new office.

The truth is that while Microsoft stock has been a dud, Microsoft the company has done quite well. Take a metric a CEO has more accountability over than share price: Earnings per share. Since Ballmer took over in 2000, Microsoft has grown earnings per share by 9.8% per year, compared with 3.9% for the broader S&P 500. Next to other established large-cap tech companies, Microsoft’s results under Ballmer have been excellent:

Source: S&P Capital IQ

Criticising the dearth of innovation under Ballmer is a more rational spat, but still misses the mark. Apple became a monster in consumer devices, but that was never Microsoft’s ground to begin with. Google took over Internet search, but it struggles to make a dent in Microsoft’s business software division. There is no shame in sticking to your circle of competence, and that’s what Microsoft has done — quite well, in fact. As John Gapper of Financial Times writes:

What’s happened to Microsoft over the past 30 years? Has it gone up like a rocket and flamed out, like most technology companies? Not only is it still around but it’s one of the biggest companies in the US — as valuable as Google. The real threat to Microsoft was that open source software would undermine Windows, but that didn’t happen. Its servers division — a boring, solid performer that churns out cash, is prospering and Microsoft shows every sign of adapting to the era of cloud computing.

Take revenues at Microsoft’s three core divisions: Windows, Microsoft Business, and Servers and Tools over the last decade:

Source: S&P Capital IQ

If these numbers represent the work of a failed CEO, stop the ride. I want off.

“The resignation of Microsoft’s CEO is also an acknowledgement: The computer world changed, and Microsoft hasn’t,” Derek Thompson wrote last week. He’s right. After Ballmer’s three decades at Microsoft, the company needs a fresh face and new ideas. But when pundits talk about Microsoft losing its edge, or falling behind, or becoming a dinosaur, remember that in 2012 it earned more free cash flow than the annual GDP of more than half the world’s countries. Pardon me for thinking it’s done some things right.

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A version of this article, written by Morgan Housel, originally appeared on fool.com.

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