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Hedge fund tycoon, David Einhorn, raises stake in software firm and then attacks its chief executive for 'Charlie Brown management'.

Guy Brighton
  • 27 may 2011

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This article titled “Microsoft’s Ballmer must go, says hedge fund tycoon” was written by Simon Bowers, for The Guardian on Thursday 26th May 2011 17.17 UTC

David Einhorn, the poker-playing hedge fund tycoon who made a fortune short-selling Lehman Brothers, has turned his fire on Microsoft boss Steve Ballmer, accusing one of the toughest executives in corporate America of being “stuck in the past” and calling for him to go.

Einhorn’s breathtaking public attack comes shortly after his Greenlight Capital fund raised its stake in Microsoft to 9m shares, or about 0.11%.

However, while he considers the stock undervalued, the hedge fund boss said the software firm had missed a string of opportunities under Ballmer’s “Charlie Brown management”, referring to the hapless star of the Peanuts cartoon strip.

Ballmer, who took over the running of Microsoft from founder Bill Gates in 2000, stands accused of allowing Apple to steal a competitive lead on it in recent years, as new markets for tablet computers and smartphone technologies opened up.

Some of the businesses acquired by Microsoft had been a waste of money, Einhorn added, though it was unclear whether that extended to the group’s recent .5bn (£5.2bn) acquisition of Skype.

His verdict on Microsoft’s Bing search engine was clearer: it was “a sinkhole”, he said. The group’s online services division, which includes Bing, lost more than 0m in the last quarter.

“He [Ballmer] has allowed competitors to beat Microsoft in huge areas, including search … Even worse, his response to these failures has been to pour tremendous resources into efforts to develop his way out of these holes.”

Einhorn, whose Greenlight Capital is also an investor in Apple, called for Microsoft to “give someone else a chance”, describing Ballmer’s continued presence at the helm as “the biggest overhang on Microsoft’s stock”. He said the company “isn’t getting credit for some of its achievements and prospects”.

As evidence of Ballmer’s increasing unsuitability, Einhorn dredged up past remarks made by the Microsoft chief executive when he had sought to brush aside suggestions that Apple’s iPhone or iPod would pose a threat to Microsoft. Other comments said to demonstrate Ballmer was out of touch included the revelation that the software boss had banned his children from using Google or iPods.

Einhorn was speaking at the annual Ira Sohn Investment Research Conference in New York, a platform where, four years ago, he delivered a withering — and, it transpired, extraordinarily prescient — analysis of critical flaws at Lehman Brothers in a speech entitled “Accounting Ingenuity”.

His was not the only hedge fund to go short on Lehmans — betting on its shares declining in value — but outspoken remarks from the then 37-year-old fund manager made him an instant bete noire to senior figures at the investment bank, then led by chief executive Dick Fuld.

Within four months, Lehman collapsed spectacularly and precipitated the global financial crisis.

Einhorn’s speech sets the stage for a very public battle with Ballmer, who is unlikely to take the criticisms lying down. Like Fuld, the Microsoft boss is renowned as one of America’s most singularly driven executives — as vividly demonstrated in his flamboyant stage appearances, complete with primal screams, during Microsoft events. Comparisons with mild-mannered Charlie Brown can only go so far.

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