More bad news for Microsoft cranks up pressure on Steve Ballmer The latest bout of bad news from Microsoft's flagging PC software business has stirred up simmering impatience on Wall Street, and increased the odds of an activist investor exerting pressure on the company, analysts warned. Microsoft's shares tumbled by 11.4 per cent on Friday, bringing an abrupt end to a strong rally this year as investors reacted to its latest failure to whip up consumer interest in Windows PCs, tablets and phones. Besides revealing that it had seen a 20 per cent drop in consumer demand for PCs in the second quarter of the year, Microsoft took a $900m charge for an inventory writedown on its Surface RT tablet - a device billed as an important weapon in the fight back against Apple's iPad when it was launched last October. "It's [Steve] Ballmer's issue: the buck stops there," said Brent Thill, software analyst at UBS. The Microsoft CEO has done "a phenomenal job on the enterprise side," Mr Thill added. But when it comes to responding to fundamental changes in personal computing like the rise of smartphones, "he keeps talking about this year after year after year, and it hasn't worked." That failure could soon come back to haunt him. The US activist investment group ValueAct, which this year revealed it had taken a near-$2bn stake in the company, has talked to other investors about its plans to press for a board seat at the company, according to one person familiar with the situation. Reports at the end of last week suggested that it had now stepped up that campaign and had gone to the company directly with its request. If it is rebuffed and decides to take its case to other shareholders at the company's annual meeting this year, it could expose deeper investor dissatisfaction and raise uncomfortable questions about Mr Ballmer's 13-year leadership. After last week's earnings setback, the time for outside pressure looks ripe. It is less than two weeks since Mr Ballmer won generally positive reviews on Wall Street for a reorganisation designed to make Microsoft more responsive to a technology world dominated by mobile devices and internet services - even though most analysts also said they did not expect the shake-up to yield results for a considerable period of time. Last week's results quickly wiped away any warm feelings. Besides revealing the urgency of Microsoft's need to move beyond the shrinking PC market, the figures showed that adjusting to Mr Ballmer's new formula of devices and services could be a costly and protracted exercise. On the devices side, the writedown for the Surface RT revived unease that the company's ambitions in the hardware business could be fraught with setbacks. While a separate version of the Surface aimed at businesses has generated some interest, the RT - a more radical new product aimed at individual buyers - was widely panned from the outset. The move into services, meanwhile, has already started to weigh more heavily on Microsoft's results than expected. The internet-based Office 365, for instance, has seen its revenues grow rapidly, to an annualised $1.5bn, from $1bn in the previous quarter. But shifting from upfront sales of Office software to a subscription-based business dependent on future fees has depressed revenues more than expected in the short term and left investors nervous about how far the transition will eat into Microsoft's profits. Speaking at a conference this year, Jeff Udden, founder of ValueAct, called for the company to reduce its focus on consumers. His remedy for Microsoft would involve a focus on its business customers and a move into the cloud, using its Azure operating system and investments in data centres to create the world's leading cloud computing platform. That argument has resonated with other investors for much of this year, contributing to a jump of more than a third in the share price and adding $80bn to Microsoft's stock market value before last week's rude awakening. Like many others on Wall Street, Mr Thill still argues that the fruits of its success with business customers - such as a 12 per cent increase in deferred revenues booked in the latest quarter - show where Microsoft should refocus its efforts. "They know what they need to do, they have a playbook," he said. Microsoft's response is set to come at an analyst meeting that it has called for late September. With ValueAct breathing down his neck and the company at a turning point, Mr Ballmer is about to face a critical moment.