The last few months have been eventful for Microsoft (NASDAQ:MSFT) as it saw the release of the Windows 8 operating system and now the exit of its Windows division head Steven Sinofsky. It remains unclear as to why Sinofsky left the company, but it seems like his reputation of being difficult to work with was the primary reason for his ousting. 
We think that Microsoft’s recent push toward integrating its platforms with the Windows 8 OS is forcing the focus on company culture as CEO Steve Ballmer is seeking to build a company that is more integrated and focused on collaboration. Over the longer term, we expect these changes are likely to help Microsoft become more team-oriented and foster innovation through collaboration.
- Microsoft Earnings: Revenue And EPS Miss Expectation
- Microsoft Earnings Preview: Cloud Adoption To Spur Revenues In Q3.
- What’s Microsoft’s Fundamental Value Based On 2015 Results?
- By What Percentage Can Microsoft’s Revenues And EBITDA Grow In The Next 3 Years?
- How Has Microsoft’s Revenue Composition Changed Over The Last 5 Years?
- By What Percentage Did Microsoft’s Revenue And EBITDA Increase In The Last Five Years?
Context of Departure
Sinofsky was the President of the Windows and Windows Live division and was the primary public face of the firm’s Windows 8 launches. According to some rumors, there was growing friction between Sinofsky and other Microsoft executives due to his lack of collaboration during the Windows 8 release cycle.
Specifically, Sinofsky is alleged to have not shared internal test versions of Windows 8 with other teams within Microsoft, which led to a lack of full integration of Office on the Surface RT tablet. While this behavior might have been overlooked for smaller product releases, Windows is the biggest contributor to Microsoft’s value and Window’s 8 is arguably the most important upgrade cycle in its recent history. This have been the tipping point for CEO Steve Ballmer.
Ballmer Aims to Make Microsoft Better Integrated
In our opinion, the departure of the Windows head was an effort by Ballmer to make the company more focused on the success of Windows 8. We think the company’s top brass has rightly realized that it needs deeper integration across products and services, otherwise it risks losing market share to well integrated companies like Apple (NASDAQ:AAPL). The company can achieve this only if all of its teams collaborate on building the best product with as many Microsoft services as possible.
One of the first steps that Ballmer took after Sinofosky’s departure was to force co-operation by hiring two executives to replace the Windows head instead of hiring one. We expect that some employees in the Windows division who are loyal to Sinofsky will also leave the company over the next few months, and the company can steadily improve on creating a collaborative culture over the long term.
Sinofsky’s Exit Could Make Windows 8 More Open
One primary criticism leveled at Microsoft during the Windows 8 release was that the Windows ecosystem was moving towards becoming closed for outside developers. We aren’t sure whether this occurred due to Sinofsky or is part of Microsoft’s long-term strategy, but we will be closely watching if the new Windows heads will make any changes to make Windows 8 more open going forward.
We currently have a $41 price estimate for Microsoft, which is approximately 40% above the current market price.Notes: