July 11, 2013 2:50 PM ET
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(Reuters) – Microsoft Corp launched its biggest internal restructuring in five years to unify development of its products including Windows, across an increasingly wide spectrum of ways to use them, from mobile devices to the cloud.
The company is trying to address a lack of coordination and spark innovation within the $74 billion annual revenue, 98,000-employee organization. The flagship Windows operating system, developed separately for PCs and mobile devices, will now be folded into one group, for instance.
The moves, many of which had been widely reported, re-align the company’s operations to achieve Chief Executive Steve Ballmer’s goal of becoming a “devices and services” corporation.
Microsoft, which has been struggling to compete in a world of mobile devices and Web-based services dominated by Apple Inc and Google Inc, launched the Surface tablet in 2012. But the device has failed to make meaningful headway against the iPad or Google Android devices made by Samsung Electronics and others.
Its Windows 8 release last year also alienated PC users accustomed to a long-established interface, prompting Microsoft to bring back, among other things, the familiar “Start” button in a hasty update. All operating systems now come under Terry Myerson, who previously headed up Windows Phone and the software giant’s efforts to crack the mobile market.
“You don’t do a major reorganization like this unless you have some serious problems,” BGC analyst Colin Gillis said.
“It can be a major distraction. The details have to be ironed out, there will be a lot of water-cooler talk and that’s happening as the company has some critical products coming out, like a unified phone, Xbox.”
Ballmer is trying to bring products to the market faster and make the company more efficient, and wants to entice people to use Microsoft products, like Word and Office, on a variety of devices besides personal computers.
“We are rallying behind a single strategy as one company — not a collection of divisional strategies,” Ballmer said in a memo to employees published on Microsoft’s website on Thursday.
The company’s shares were up 1.98 percent at $35.39 in midday trade on the Nasdaq.
A NEW ERA?
Microsoft has been struggling with sharply declining personal computer sales that cut into its software revenue as consumers and some businesses increasingly favor smartphones and tablets.
Worldwide PC shipments declined 11.4 percent in the second quarter, according to industry research firm IDC.
Ballmer, who took over as CEO from co-founder Bill Gates in 2000, said he wants the company to be more like Apple, which has roared past Microsoft in sales and stock market value in the past few years by smoothly melding its devices with online services such as iTunes.
Now, the four new engineering groups include Myerson’s operating systems unit, and applications and services engineering to be led by Qi Lu, who previously oversaw the perennially money-losing online services arm. He also will be responsible for Office software, one of Microsoft’s biggest cash cows.
Kurt DelBene, the former president of Microsoft Office, will retire. His departure follows that of gaming chief Don Mattrick, now CEO of Zynga, and Steven Sinofsky, formerly head of the Windows unit.
Satya Nadella, the company’s leading authority on Internet infrastructure, takes over all Web-based cloud services such as Azure, which competes with Amazon.com Inc’s AWS.
And Julie Larson-Green will head the devices and studios engineering group, supervising development of hardware and related software from the Surface tablet computers to the Xbox game console.
Units will also be dedicated to strategy and research, marketing and business development, Ballmer said.
“From a strategic perspective, it seems that they’re just streamlining the operating groups to bring all…into one group, all the applications all the cloud focus, all the devices,” Cross Research analyst Richard Williams said. “There’s a certain logic to that that makes sense to us.”
But it was unclear whether the changes will mean that Microsoft will offer less financial data about certain products, he said.
“It’s a major concern if they use this opportunity to reduce the transparency, so we’re hoping that’s not the case,” he said, adding he hoped for more details during a company conference call later Thursday.
Microsoft’s last significant reorganization came in July 2008 when Ballmer split Microsoft’s ‘Platforms & Services Division’ into three separate units – Windows, Online Services and Server and Tools.
(Reporting by Alexei Oreskovic in San Francisco, Sinead Carew and Nicola Leske in New York and Supantha Mukherjee in Bangalore; Editing by Robin Paxton, Jeffrey Benkoe and Leslie Gevirtz)
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