For years, Microsoft (MSFT) shares were dead money, as the technology world passed the Redmond, WA.-based behemoth by. However, with shares up 41.7% year-to-date, there are two men responsible for the sudden optimism in Microsoft and for two very different reasons.
ValueAct Capital founder Jeff Ubben took a huge stake in Microsoft earlier this year, buying $2 billion worth of stock, as he believed the company was vastly undervalued. Disclosing the position in April, it seemed like to many, myself included, that Ubben might not be able to get much out of Microsoft, given the company's enormous market cap, and Ubben's relatively small position.
Ubben has helped restore confidence in the company, getting ValueAct’s president, G. Mason Morfit to potentially join the board in fiscal 2014. The hedge fund, which has some $12 billion in assets under management, is regularly meeting wit Microsoft's board and executives to talk about strategic initiatives, and where the company is going.
The two firms signed a cooperation agreement, allowing "..for regular meetings between Mason Morfit, president of ValueAct Capital, and selected Microsoft directors and management to discuss a range of significant business issues. The agreement also gives ValueAct Capital the option of having Morfit join the Microsoft board of directors beginning at the first quarterly board meeting after the 2013 annual shareholders meeting."
Following Ubbe's stake reveal in April, Microsoft has upped its dividend by 22% and share buyback by $40 billion in Sept. That's before Morfit is set to potentially join the board following Microsoft's board meeting, scheduled for later this week.
The other man to thank is CEO Steve Ballmer, but not for the reason most would think.
Ballmer is not well liked on Wall Street, and when Microsoft surprisingly announced that Ballmer would be stepping down from the top job after replacing company co-founder Bill Gates for more than a decade, shares gained more than $2 Aug. 23, the day of the resignation.
Since that time, speculation has come out that Microsoft is looking at replacing Ballmer with Ford (F) CEO Alan Mulally, former Nokia (NOK) CEO and current Microsoft executive Stephen Elop and Tony Bates, the former CEO of Skype, which Microsoft bought in 2011.
Ballmer's Microsoft has missed the resurgence in consumer electronics and cloud computing, despite having vast resources and little to show for them. The company's lone well-received consumer facing product is Xbox 360. Microsoft missed the smartphone and tablet revolution for years, and is just now playing catch up with its Windows Phone operating system and Suface tablets, to mixed success.
Under Ballmer, Microsoft has started to transition into being an all-in-one shop for consumer electronics, integrating its software and hardware, much like Apple (AAPL) does with its iDevices and iOS operating system. That strategy has seen mixed results, though in Microsoft's fiscal first-quarter, Devices and Consumer revenue grew 4% to $7.46 billion, as Surface revenues grew to $400 million. That's a far cry from the 14.1 million iPads Apple sold during its most recent quarter, generating $6.19 billion in revenue, but it's a start.
For now, there's optimism surrounding Ballmer's replacement, with the initiative being helped by ValueAct and Ubben. If the right person is brought in, and can focus on cutting costs, speeding up the time it takes products to get to market, and focusing on initiatives such as cloud computing, then the optimism placed on Microsoft's shares will not be for naught.
However, if Microsoft doesn't bring in the right person, then the two aforementioned men may be looking at the dreaded Microsoft "blue screen of death." For two very different reasons.