[By Duncan McLeod]

Microsoft’s share price is in the doldrums. For 10 years, the stock of the world’s largest software maker has languished while those of rivals like Apple have soared. But the company remains a cash and dividend machine and the product pipeline has improved.

Steve Ballmer is one of the most intimidating people I have interviewed as a journalist. When I sat down with him at Gallagher Estate in Midrand a few years ago, the 45-minute encounter was unnerving. The Microsoft CEO stared me in the eyes for the entire duration of the meeting, not looking away once as he passionately retorted to the toughest questions I could throw at him.

I came away from the encounter convinced Ballmer was on top of his game. Here was a hypercompetitive CEO who really knew his company and the complex industry in which it operated. Here was a CEO fighting competitive battles on all fronts but convinced he would prevail.

Yet pulling up a 10-year chart of Microsoft versus its rival Apple paints an entirely unflattering picture of the company that Ballmer has led since his pal Bill Gates stepped down at the turn of the century.

In the past 10 years, Microsoft has lost more than a quarter of its value, while Apple has gained almost 3 000%. Sure, Microsoft has paid handsome dividends to its shareholders in that time, but the fact remains that an investment in Apple would have generated a far superior return to investors.

Microsoft, which in the late 1990s famously came to Apple’s rescue through an investment that helped bail it out, is now worth less than two-thirds of its rival. And the gap is widening by the week. On Monday, Apple’s market capitalisation touched a new high of US$345bn, with Tuesday’s quarterly earnings update set to push it higher still; Microsoft, on the other hand, was valued at $224bn, less than half of its dot-com bubble size of over $600bn in 2000.

Based on share price performance alone, Ballmer’s term in office has been a failure. Alistair Fairweather of the Mail & Guardian wrote a thought-provoking piece last week in which he suggested that Microsoft has been in “creeping decline” for the past decade. He wrote that as long as Ballmer continues to lead the company it will be “doomed to a slow downward march to irrelevance”.

But by any financial measure, Microsoft is undervalued. Its p:e multiple is flirting with single digits, despite paying shareholders a fortune every year in dividends and buying back stock.

And with a strong product line-up — especially Windows 8, a new Office productivity suite and updated smartphone software ready to roll out in the months ahead — and with its antitrust headaches behind it, its share price is looking undervalued.

The company, once referred to as the Beast of Redmond because of the absolute dominance it held over the technology industry, has fallen out of favour in the investment community. However, the cycle may be turning.

It’s slowly winning the console wars with its Xbox platform, it finally has a compelling smartphone proposition and the upcoming Windows 8 — let’s not forget Windows still dominates on the desktop — is set to launch the company into new computing form factors like tablets for the first time and introduce a radical new user interface to the world that could make Apple’s Mac OS X look kind of old school.

With the backing of a powerful developer community, it’s far too early to write off Microsoft. On the contrary, this is a company that is starting to fire on all cylinders. Ballmer may yet prove the sceptics wrong. I don’t think he’s thought once about the prospect of looking away. It’s not in his DNA.