Steve Ballmer Says Smartphones Broke His Relationship With Bill Gates

Steve Ballmer said his decision to push Microsoft Corp. into the hardware business contributed to the breakdown of his relationship with longtime friend and company co-founder Bill Gates. Ballmer's only regret: not doing it sooner.

Ballmer, who was chief executive officer of Microsoft for 14 years, told Bloomberg Television that if he could do it all again, he would have entered the mobile device market years earlier. When he finally did, Gates and other members of the board disagreed, he said.

Ballmer, now owner of the NBA's Los Angeles Clippers, told Bloomberg Television's Emily Chang, that he and Gates have "drifted apart" partly due to a disagreement over whether Microsoft should make its own handsets and tablets.  

"It was definitely not a simple thing for either one of us," he said. There was a "little bit of a difference in opinion on the strategic direction of the company."

Ballmer said they had a "brotherly relationship in the good parts and the bad parts." (He opens up more about about Gates, his Microsoft tenure, the Clippers, and his philanthropic and government work on Bloomberg Television's Studio 1.0 show at 9 a.m. PT this Sunday.) "Towards the end, that was a bit more difficult than not, particularly with the strategic direction change and you know, the stock price isn't going anywhere, so the rest of the board felt pressure -- despite the fact that profits were going up -- so I think you had kind of a combustible situation," he recalled.

"There was a fundamental disagreement about how important it was to be in the hardware business," Ballmer said. "I had pushed Surface. The board had been a little -- little reluctant in supporting it. And then things came to a climax around what to do about the phone business."

Microsoft entered the market in 2012 with the Surface RT, a tablet that sold poorly and required Microsoft to take a $900 million charge to write down the value of inventory. Now, the rejiggered Surface business is profitable and generated more than $4 billion in sales for the most recent year.

Microsoft's foray was a mess almost from the start, with Microsoft's board rejecting Ballmer's initial plan to acquire Nokia Oyj's handset unit. By the time the $9.5 billion deal closed, Ballmer had handed the reins over to Satya Nadella and the Nokia business was in tatters. Microsoft has now written down almost the entire value of the deal and laid off most of the workers.

Ballmer said the mistake was getting into handsets and tablets too late.

"I would have moved into the hardware business faster and recognized that what we had in the PC, where there was a separation of chips, systems and software, wasn't largely gonna reproduce itself in the mobile world," he said.

What about that famous quote where Ballmer said Apple Inc.'s iPhone would never sell because it cost too much? He now wishes he'd realized how Apple was going to make it work -- through mobile carrier subsidies.

"I wish I'd thought about the model of subsidizing phones through the operators," he said. "You know, people like to point to this quote where I said iPhones will never sell, because the price at $600 or $700 was too high. And there was business model innovation by Apple to get it essentially built into the monthly cell phone bill."

© 2016 Bloomberg L.P.