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Thursday, June 15, 2006

Bill Gates Bowing Out

Bill Gates, not Steve Ballmer, is going to leave Microsoft (MSFT).

Effective in July 2008, Bill Gates will transition out of the day-to-day role inside Microsoft to focus on his global health and education work for the Bill & Melinda Gates Foundation. After July 2008 Gates would continue to serve as the company's chairman and an advisor on key development projects.

While the company is saying it will be July of 2008, you can probably bet that with such a far lead time that this date will come sooner than that date. When people give a 2 year timeline, it is usually only half of that time.

The company announced that Chief Technical Officer Ray Ozzie will immediately assume the title of chief software architect and begin working side by side with Gates on all technical architecture and product oversight responsibilities to ensure a smooth transition.

I can recall being with some friends after work one hot day in 1998 when I was the news broadcaster for a large day trading firm discussing the day this would come. We basically came to the conclusion that MSFT would trade down 5% on the news if it was this, or even worse if it was a death or incapacitation that instantly rendered the company into a stagnant position. That was back when Gates' stake was even higher and back when Gates was the man the world watched. Microsoft was then the greatest growth story of all time and making new millionaires each day and when the company was announcing stock splits and massive growth initiatives on a regular basis. Now it is the most dominant fixed software company that has been snared into mature markets hindered with product delays that has diversified into many areas, and a cash rich and slow moving behemoth that has too many characteristics similar to old fashioned utilities back in the day. As a friend of mine who works for the Federal Reserve in Chicago said the afternoon Microsoft announced its special $3.00 dividend that changed the company: "Microsoft isn't a growth company anymore; It's a Utility stock!".

MSFT traded up 0.87% today during the normal trading hours and the shares, while they dropped over 1% initially, are actually up a few pennies in after-hours trading. What do you think the market thinks of him now? It may not be fair to take the attitude that even Mr. gates is deemed largely irrelevant to the company, but the market sometimes is not kind to individuals.

As of the last date posted, Bill Gates owned 977 Million shares of Microsoft. You can bet that there will be dozens of analyst reports tomorrow morning with mixed messages, and speculation of when more stock sales will come out. He did signal in the past that he intended to retire when he was 55, and this looks like it will put him 2 years short of that age. He has already been out of the CEO position for some time, so you can bet that while some will miss him many calls tomorrow will say SO WHAT.

In his exit announcement he said, "I've decided that two years from today, I will reorganize my personal priorities. I believe with great wealth comes great responsibility, the responsibility to give back to soicety and make sure those resources are given back in the best possible way, to those in need."

This has oddly enough not had much impact on key competitors in after-hours trading. Google (GOOG) is up 0.10%, Yahoo! (YHOO) is down 0.25%, RealNetworks (RNWK) is up 0.5%, Sun Micro (SUNW) is only up 0.2%, and WebEx Communications (WEBX) is flat. Oracle (ORCL) is the stand-out up 5% in after-hours trading, but that is after the company gave positive guidance for the quarter.

Jon C. Ogg
June 15, 2006

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