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Story corrected to note Microsoft's revenue, not net income, grew to $62 billion in fiscal 2010



) -- Hedge fund manager David Einhorn isn't alone in his criticism of


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Chief Executive Officer Steve Ballmer, as mutual fund shareholders of the technology giant are joining in the chorus of boos.

During a conference in New York Wednesday,

Einhorn said Microsoft should fire Ballmer

, blaming the longtime company executive for wasting millions in research and development without having a focus on the future. "Ballmer's continued presence is ruining your stock," Einhorn told investors in Microsoft.

Microsoft CEO Steve Ballmer

By his own admission, Einhorn isn't a home-run hitter. His success at shorting

Allied Capital


Lehman Brothers

ahead of the financial collapse has been well-documented, as has his bearish view on real-estate company

St. Joe

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But Einhorn hasn't fared nearly as well with his bet on Microsoft, a stock that is down 11% in 2011, 1% in the past year, and 30% over a decade. As of March 31, Einhorn's Greenlight Capital hedge fund owned 9 million shares of Microsoft, having added more than 1 million shares to the position during the first quarter. The fund owned more than 3 million shares of Microsoft as the stock rebounded in late 2009, but as Einhorn has steadily added to the position, the stock has pulled back further below $30.

Einhorn's laundry list of complaints may make him sound more like a scorned lover than an astute investor, but other large shareholders of Microsoft back Einhorn's view of the company's boss.

"He brings up a lot of good points. I can't say I disagree with him," Greg Estes, portfolio manager with Intrepid Capital, says of Einhorn's criticism of Ballmer. "Ballmer has done an OK job shepherding that core product suite, like the operating system and Microsoft Office. But there have been a lot of misses along the way."

Intrepid Capital owns nearly 1 million shares of Microsoft across several of its mutual funds. Estes says Microsoft has long been a favorite of the fund because of the company's massive free cash flow and low valuation. The company currently has a forward price-to-earnings multiple of less than 9, an indication that shares trade at a sharp discount to the market's multiple.

Even venture capital guru

Steve Blank

says Ballmer has been a "miserable failure," according to

Business Insider

. Blank says the board should be blamed for not replacing Ballmer sooner, and that Microsoft will begin to experience the same pain


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felt before restructuring about six quarters from now.

The problem with Microsoft, Estes says, has been the market's perception of Microsoft, as the company is often viewed as a lumbering, directionless giant compared to rivals


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That also has a lot to do with Microsoft's notorious flops, the misses that Estes refers to. The Zune portable MP3 player was always considered an also-ran to Apple's superior iPod device. Last year, Microsoft quickly dispatched its Kin mobile phone after only two months of it reaching market. Similarly, Microsoft had planned to release a dual-screen tablet device called the Courier because it was ultimately scrapped.

"Their track record -- they've developed stuff that really hasn't panned out," Estes says. "It's like they're not sure what they should be doing. There should be better direction strategically with the firm. There needs to be some sort of strategic vision."

The latest company misstep in the eyes of many investors was the $8.5 billion acquisition of Internet communications company


. Microsoft paid 85 times the $100 million Skype had filed to raise in an initial public offering, a valuation that left many scratching their heads.

"In particular, the Skype acquisition was expensive," Estes says. "They have plenty of cash, but you have to question why they did it. When you see a move like Skype, it reinforces that opinion."

All of this has been put squarely on Ballmer, who has been the head of Microsoft since January 2000 after founder Bill Gates handed him the reins. Estes says Microsoft's board has no choice but to seriously consider Einhorn's call for action.

"It should be a wake-up call to them. This guy is a big shareholder," Estes says. "But let's be honest, if they're board members, they're shareholders as well. They haven't seen the stock do anything in 10 years. How much body of evidence do you need to show something needs to be done."

If Microsoft does act and Ballmer is ousted, it won't be an overnight fix. As Microsoft shares have languished for a decade, it will take more than a new CEO to change the market's view of Microsoft. Given how large a business Microsoft has and how many investors follow the company, much of the market's implied valuation through the stock price is based on more subjective things.

"The opinion one has of the CEO is definitely a subjective issue," Estes says. "The role of the CEO should be one that is more forward looking. I think Ballmer's record in terms of being forward-looking in the decisions he's made has been spotty. A new CEO wouldn't be brought in to do the same things they're doing today. Taking the step of replacing the CEO can send a signal to the market. It can then change that subjective perception of Microsoft."

Other fund managers call for some perspective. John Buckingham of Al Frank Asset Management notes that since Ballmer was named CEO of Microsoft, the company has seen revenue grow from $23 billion in fiscal 2000 to $62 billion in fiscal 2010. Even with numerous acquisitions and the establishment of a dividend, cash on the balance sheet is up to $37 billion from $24 billion during Ballmer's tenure, Buckingham notes.

"On the other hand, the stock price -- by which most public CEOs are judged -- has lost half of its value since January 2000," Buckingham says. "Of course, the shares were overvalued back then and are undervalued today."

-- Written by Robert Holmes in Boston


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