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Despite layoffs, Ballmer is doing a great job

Steve Ballmer is at the helm for the first ever layoff in Microsoft history. But Don Reisinger thinks that from a financial perspective, Ballmer is still one of the best CEOs in the industry.


Microsoft announced 3,000 layoffs earlier this week. The layoffs inch Microsoft closer to its goal of cutting 5,000 employees from its payroll. The company claims the layoffs are a part of broader strategy that aims at making the software giant more focused on others areas of its operation.

Whatever the logic, there's one person at the company that, over the past nine years, has performed quite admirably: Microsoft CEO Steve Ballmer.

I'll be the first to admit that Ballmer can be eccentric. He's often criticized for his outspokenness and willingness to mix it up with tech royalty (I'm looking at you, Apple). He has a tendency to open his mouth when he shouldn't. And he has embarrassed himself on a few occasions.

But when we look at his performance as a CEO from a financial perspective, I don't think even the most ardent Microsoft hater can say that he has done a poor job. Don't get me wrong, I do believe that these layoffs are a mark on his record, but when taken as a whole, Ballmer has proven to be one of the tech industry's most competent CEOs.

When Ballmer became the CEO of Microsoft in 2000, Bill Gates said it would be good for his company. He explained to reporters that Ballmer would be charged with the task of managing the huge corporation, while Gates would focus on the future of Microsoft's platforms. It worked.

Incredible growth
When Ballmer became the CEO, Microsoft had $52 billion in total assets. During that year, his company enjoyed a $9.4 billion profit.

According to its 2008 annual report, Microsoft now has almost $73 billion in assets and no debt. During its 2008 fiscal year, the software giant generated a profit of approximately $18 billion--almost double what the company made when Ballmer took over nine years ago.

But it gets better. Microsoft lost $158 million in cash the year Ballmer became CEO. Last year, the company added $4.2 billion to its coffers. That's more than enough for it to maintain its position of power in the industry and if need be, invest in companies or technologies to solidify its standing going forward.

Management effectiveness
Management effectiveness--a measure of how well CEOs and their managers are using assets, equity, and investments to run a public company--is extremely high at Microsoft. The company's average return on assets (a measurement of how efficiently management is using its assets to generate earnings) is 17.26 percent over the past five years. That figure is almost double the rest of the companies in the industry.

Microsoft's average return on equity (profit a company generates with the shareholders' invested capital) for the past five years is 26.46 percent. That figure is 10 percentage points higher than the rest of the industry.

Microsoft's return on investment--how well it's able to profit off investments it has made--is a whopping 23.53 percent. Compare that to the industry-wide figure of 15.26 percent and it once again becomes clear that from a management perspective, Microsoft is second to none.

The biggest issue (if you can call it that) with Microsoft's financial performance is that its stock price hardly moves. Since Ballmer became the company's CEO, the share price has hovered at about $20 to $30. Those looking to make a quick profit won't like that. But if you're looking for a solid, stable stock that will pay dividends, Microsoft is for you.

In fact, Microsoft's current quarterly dividends are at $0.11 per share. When it first started issuing regular dividends in 2004, the company was offering $0.08 per share. Don't let that slight increase fool you. Issuing dividends is typically a sign of a healthy company. And considering those dividends have only gone up, it's even more evidence of Microsoft's strong financial health.

The economy
I should note that the economy has hit Microsoft hard. The company's quarterly profit slipped by a little more than $1 billion year-over-year, according to its latest filing. But we can't look at that decline in a vacuum. There are are countless organizations both in the tech field and out that are incurring huge losses since the recession hit. To fault Ballmer for making only $3 billion last quarter instead of $4.4 billion is a little silly.

I could go on, but I think you get the point: in every financial metric, Microsoft has been gaining financial strength since Ballmer became the CEO. You can say what you want about who Ballmer might be as a person, but don't let the layoffs fool you. As a CEO, an executive charged with managing a company and maximizing shareholder value, he's extremely capable.

Check out Don's Digital Home podcast, Twitter stream, and FriendFeed.