Microsoft’s stock is trading around $US38 today, taking it to a heights it hasn’t seen since 2000.
The main catalyst for the share’s spike seems to be a big note from Nomura analyst Rick Sherlund.
Sherlund isn’t your average Microsoft analyst. Sherlund was at Goldman when it took Microsoft public, and he acted as a point person. In 2011, Dealbook described him as a “long-time friend” of Bill Gates.
Inside Microsoft, Sherlund is well-respected as one of the few analysts that really understands the company.
In his report today, he says it’s likely that Alan Mulally, the CEO of Ford, will be named as Microsoft’s CEO by December.
While internal candidates like Stephen Elop and Tony Bates are being kicked around, Sherlund says he does not believe they are seriously in the running.
He says other top candidates likely include Boeing CEO James McNerney, Jr. and ex-Motorola COO Edward Breen. Those are two names we’ve never heard before.
Additionally, he reports Microsoft has been trying to woo Paul Martiz, a former Microsoft employee who was running VMWare.
Sherlund says Mulally/Maritz would be a dream team. Maritz would be Microsoft’s head of software/products and Mulally as CEO/operator. If it helps, think of Tim Cook and Jony Ive. A similar division between operator and visionary.
However, it seems unlikely Martiz joins Microsoft.
As a result, he says Gates “may then step in to assume a temporary, more active role and help out with the product perspective.”
This would be a huge move, but not without risks. Gates has been out of the tech game a long time. It’s hard to believe he would be able to lead a product renaissance.
So what’s the plan for Mulally when he takes over Microsoft? In Sherlund’s mind, it’s time to dump two major anchors — Bing and Xbox. Combined, he thinks Bing and Xbox are losing $US3-$4 billion a year, which is a $US0.30-$0.40 drag on EPS.
He thinks Microsoft should give away or sell Bing, and spin out or sell Xbox.
It’s not just that they lose money, either. He says, “The even bigger issue is that this business does not drive traction in smartphones or tablets and does not contribute to PC demand or enterprise products. They are not strategic and are a costly sideshow.”
Hiring Mulally, then dumping Xbox and Bing are step one in Sherlund’s big plan for Microsoft.
Step two in his plan involves “financial engineering” and “corporate governance.”
Sherlund thinks Steve Ballmer completely leaves Microsoft. He also throws out the crazy idea that Microsoft would pay $US12 billion to buy all of Ballmer’s shares in the company. We think this is a pretty insane idea and would be stunned if it happened.
Either way, Sherlund is pushing for some sort of buyback at Microsoft.
He also thinks there’s some sort of board shake up and that many current members step down in the next year.
Step three in his plan for Microsoft is the hardest of them all — really fixing the company.
His basic ideas:
- Build out Azure, the cloud platform that rivals Amazon.
- Make sure its enterprise software works across platforms. Office needs to work on Android and iOS to compete with Google’s apps which are growing.
- Skype and Yammer are not being taking advantage of. Microsoft should do more with both.
There will obviously have to be more, and a CEO working in the trenches should figure it all out.
Sherlund sums up his exasperation with Microsoft over the last five years by saying, “It is hard to understand how Microsoft has missed so many market opportunities. New management needs to nurture a culture of innovation and unleash creative talent to get in the game on the new platforms and not just think of the world as a PC.”
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