In late August, when outgoing Microsoft (NASDAQ: MSFT ) CEO Steve Ballmer announced he was retiring, the notion that he’d do so “within the next 12 months, after a successor is chosen,” seemed like a good idea. For both shareholders and Microsoft itself, a full year to choose the next head honcho made sense: The company could take the time needed to fully vet the best CEO candidates in the world to make sure it made the right pick. But the benefits to Ballmer’s year to choose his successor are gone, leaving investors and analysts alike feeling uncertain…
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In late August, when outgoing Microsoft (NASDAQ: MSFT ) CEO Steve Ballmer announced he was retiring, the notion that he’d do so “within the next 12 months, after a successor is chosen,” seemed like a good idea. For both shareholders and Microsoft itself, a full year to choose the next head honcho made sense: The company could take the time needed to fully vet the best CEO candidates in the world to make sure it made the right pick.
But the benefits to Ballmer’s year to choose his successor are gone, leaving investors and analysts alike feeling uncertain about Microsoft’s future. And as every Fool knows, uncertainty and stock performance do not make good bedfellows. So what’s changed to cause all the angst? A couple of things, one short-term and one long-term, and the only way to remedy the situation is to get the next CEO onboard — now.
The near-term problem
Though less concerning for Foolish investors considering Microsoft as a long-term growth and income alternative is the impact a lame-duck CEO is having on analysts. Though up 40% for the year, Microsoft’s share price has been flat to slightly negative the past week, largely because of analyst downgrades.
As you may have guessed, “worries about the software giant’s transition to a new CEO,” or some derivative thereof, are being cited for recent downgrades from the likes of Bank of America Merrill Lynch and UBS, and you can bet there’ll more until Microsoft sorts out its CEO situation.
Microsoft’s own employees, according to one report, are also beginning to feel a bit anxious. One anonymous source said there was “a sense of suspended animation setting in among some employees and managers.” How does that manifest itself? According to that same anonymous somebody, the indecision surrounding Microsoft’s leadership has given internal folks the feeling that decisions on major internal investments are being shelved until this CEO thing gets fixed.
Again, analyst downgrades and employee uncertainties are near-term concerns only and can even work in investors’ favor for those willing to buy on the dips. But the need to get moving on naming its next CEO has been expedited by Microsoft’s decision to acquire Nokia‘s (NYSE: NOK ) devices and services unit, in a couple of ways.
It was only a week after Ballmer dropped his retirement bomb that Microsoft announced it would acquire Nokia’s devices and services unit, for what today is valued at about US$7.4 billion. Before Microsoft opted to go all in with its transition to mobile devices, its Windows Phone OS was already beginning to make serious inroads, both here and abroad.
Now firmly entrenched as the No. 3 OS in the U.S., Windows Phone is really taking off overseas. With nearly 10% of the OS market in Western Europe, Microsoft has nearly caught No. 2 OS provider Apple in the region. In fact, Windows Phone has overtaken iOS in Italy and has matched Apple’s market share in Spain.
As for the acquisition, not surprisingly Nokia shareholders overwhelmingly approved the deal last week, and now word has it that the European Union is “expected to clear the deal without conditions.” With the Nokia acquisition nearly done, Windows Phone gaining traction, and Microsoft’s blowout first day of Xbox One sales complete — an estimated 1 million units were sold the first day — the stars are aligning in all the right places.
Final Foolish thoughts
Microsoft is in the midst of company-altering changes. Whether it’s new business lines showing signs of explosive growth or its transition to a device-first company, wouldn’t it be nice to have Microsoft’s new CEO in place now to assimilate the changes, rather than catch up later? The year Ballmer offered Microsoft to find a suitable successor was a nice gesture, but it doesn’t fit with today’s reality.
For Microsoft, the time to name a new CEO isn’t next year, or even next month. It’s now.
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A version of this article, written by Tim Brugger, originally appeared on fool.com.