Microsoft Corp CEO Steve Ballmer arrives for the launch of the Windows 8 operating system in New York on Oct 25. Microsoft said that Ballmer will retire within a year, once it completes the process of choosing his successor. Lucas Jackson / Reuters

Microsoft CEO Steve Ballmer, who helped Bill Gates transform the company from a tiny startup into the world's most valuable business, announced plans on Friday to retire sometime in the next year - a move that presents another challenge to the tech giant as it struggles to move beyond the era of the personal computer.

Microsoft and other companies that thrived in the PC business have been scrambling to win back consumers who increasingly prefer smartphones and tablets.

Microsoft shares leaped as much as 9 percent in pre-market trading and closed up 7.3 percent at $34.76, after the surprise announcement sparked a rally in the stock.

Detractors say Ballmer contributed to the situation by not taking early threats from Apple and Google seriously enough. He consistently pooh-poohed Google as a one-trick company and in 2007 declared: "No chance that the iPhone is going to get any significant market share."

Ballmer's jeers proved premature. Google quickly made important inroads in Internet video, online maps, e-mail and mobile computing. Those successes contributed to the damage that Apple's iPhone and iPad did to Microsoft and its partners in the PC market.

Although it derives some three-quarters of its revenue from sales of software and services to businesses, Microsoft has failed to capture the imagination of consumers who have become more enamored with mobile gadgets. Response to the newest version of its flagship Windows operating system, Windows 8, has been lukewarm.

When Ballmer took the helm in January 2000, the company was worth more than $601 billion. Today, its value is less than half that amount, at nearly $270 billion.

"There is never a perfect time for this type of transition, but now is the right time," Ballmer, 57, said in a statement. He plans to stay on until a replacement is found. Microsoft said the search committee will include Gates.

After the news broke, Microsoft's stock shot up as much as 9 percent and later came within $2 of a 52-week high.

Ballmer's announcement comes less than two months after the company unveiled a sweeping reorganization of its business in an attempt to catch up with Apple and Google.

In his statement, Ballmer noted that Microsoft is moving in a new direction and needs a CEO that will be there for the longer term.

Microsoft, he added, "has all its best days ahead".

Ballmer met Gates in 1973 while they were living down a dormitory hall from each other at Harvard University. He joined Microsoft in 1980 to bring some business discipline and salesmanship to a company that had just landed a contract to supply an operating system for a personal computer that IBM would release in 1981.

AP-AFP