Microsoft CEO Steve Ballmer to Step Down Within 12 Months

In an announcement that many Microsoft followers never thought they’d hear (at least not for a while), CEO and long-time employee Steve Ballmer announced his retirement Friday, with a plan to step down within twelve months following the identification of his successor. Shares of Microsoft (MSFT) rose over 7 percent following the news, as investors reacted positively to the departure of CEO, whose charismatic tenure was not enough to keep the company from floundering in the all-important mobile space over the past several years.

The news came in a letter from Mr. Ballmer to his employees early Friday afternoon:

There is never a perfect time for this type of transition, but now is the right time. We have embarked on a new strategy with a new organization and we have an amazing Senior Leadership Team. My original thoughts on timing would have had my retirement happen in the middle of our company’s transformation to a devices and services company. We need a CEO who will be here longer term for this new direction.

Microsoft’s Board has appointed a special committee to begin the search for Mr. Ballmer’s replacement, and it appears from the Board’s retention of an executive recruiting firm that the next Microsoft CEO will be an outsider. Company co-founder Bill Gates will notably play a roll in the process, stating:

As a member of the succession planning committee, I’ll work closely with the other members of the board to identify a great new CEO. We’re fortunate to have Steve in his role until the new CEO assumes these duties.

Mr. Gates ran Microsoft from its founding in 1975 until early 2000, when he stepped down to begin his second career in philanthropy. Under his tenure, the company expanded rapidly and aggressively, to the point that it drew the ire of regulatory agencies in the U.S. and Europe.

After assuming the CEO position on January 13, 2000, Mr. Ballmer’s early time as CEO saw Microsoft continue to prosper, with the release of Windows XP, new enterprise software strategies, and the popular, if not profitable, Xbox game console.

In the last seven years, however, Microsoft has begun to falter in the growing device and mobile industries. The company’s answer to Apple’s iPod, the Zune, was a commercial flop, and was discontinued in 2011. Microsoft did beat Apple to the “smartphone” race with Windows Mobile, but its effort to enter the consumer smartphone space with the Windows Phone OS has thus far failed to make a significant dent in the share or profits of Apple and Google’s dominating Android platform.

Most recently, and the factor that many are speculating ultimately led to Mr. Ballmer’s ouster, is Windows 8 and the Surface tablet. Under now-departed Windows chief Steven Sinofsky, Microsoft’s critical Windows operating system underwent a dramatic transformation. With a vision that both mobile and desktop platform could share a single user experience, the company redesigned Windows with a touch-centric interface and entirely new full-screen user experience. While continuing to rely on traditional manufacturing partners, Microsoft also took the novel step of designing its own hardware, the ARM-based Surface RT and the x86-based Surface Pro.

Despite heavy marketing and relatively positive hardware reviews, the Surface line never took off, and Microsoft was forced to take a $900 million writeoff on the products in July.

Even in light of the negative news, Mr. Ballmer’s successor won’t inherit a sinking ship. The company’s business division continues to perform well and its most recent fourth fiscal quarter report showed a declining, but still highly profitable, financial position. Make no mistake, Microsoft must solve the mobile puzzle eventually, but Mr. Ballmer’s departure is far from a death knell for the Redmond giant.

Mr. Ballmer has taken much criticism during his time as CEO, especially in recent years. While many have been appropriately critical of his strategy and decisions, one thing is clear to those who have paid attention to this saga: his love for the company. “This is an emotional and difficult thing for me to do,” he told employees in his letter. “I take this step in the best interests of the company I love; it is the thing outside of my family and closest friends that matters to me most.”