Microsoft Revamps Business Units Playing Catchup on Web - Bloomberg

Microsoft Corp. (MSFT), playing catch-up in mobile computing, is reorganizing into fewer units and shuffling senior management roles to speed development of hardware and Web-based services. Windows chief Julie Larson-Green will shift to oversee all hardware, including the Surface tablet and Xbox console and related games, while Windows Phone software head Terry Myerson will now lead development for that area as well as the Windows and Xbox operating systems, the company said today. In his biggest restructuring effort in more than a decade, Chief Executive Officer Steve Ballmer is concentrating divisions around hardware and Internet services to appeal to customers who increasingly use mobile devices for tasks once done on desktop machines. As demand for Microsoft's flagship Windows software ebbs amid a global personal-computer slump, Ballmer needs to slice away layers of management that have hampered development of new products. "First and foremost this is an attempt to address the fact that they are behind in tablet and mobile," said Colin Gillis, an analyst at BGC Partners LP in New York. "They're effectively saying, 'we have some problems we need to address and we need to make radical changes to accomplish it.'" Microsoft shares rose 1.9 percent to $35.36 at 12:27 p.m. in New York. The stock had gained 30 percent this year through yesterday, compared with a 16 percent gain for the Standard & Poor's 500 Index. Engineering Units The shuffle, which pares the number of engineering units to four from eight, reverses some changes Ballmer made in 2002 when he divided Redmond, Washington-based Microsoft into what was then seven individual product units, each led by an executive with operational and financial responsibilities. Since then, he's only tinkered with individual businesses. In 2011, Bob Muglia was pushed out as server chief, and in 2006 Ballmer revamped leadership of the Windows and Internet units after development delays for the Windows Vista operating system. "To advance our strategy and execute more quickly, more efficiently, and with greater excellence we need to transform how we organize, how we plan and how we work," Ballmer wrote in a memo to employees posted on Microsoft's website today. The reorganization increases Ballmer's power. Unit heads will be executive vice presidents, and tasks such as finance and business development that were handled inside divisions will be centralized at the corporate level. 'Red Tape' "Microsoft doesn't lack for great ideas, they lack the ability to execute on these ideas," Richard Williams, an analyst at Cross Research, said in an interview. "We're hoping this now means there's less red tape to go through if you have an idea." As demand wanes for PCs, Ballmer is turning away from Microsoft's original focus on "putting a PC on every desk in every home," he wrote in the memo. Market research firms IDC and Gartner Inc. said yesterday that PC shipments declined about 11 percent in the second quarter, the fifth straight quarterly decline. Microsoft is also trying to compete with Amazon.com Inc. and Google Inc. in cloud services as more customers opt for software that's run over the Web instead of installed on corporate machines. Cloud Efforts Cloud efforts that were scattered across several divisions will now be concentrated under two units. Satya Nadella, current head of the server business, will direct cloud and enterprise products. Qi Lu, responsible for Bing and other Internet projects, will oversee Office and Skype and run a new applications group. It will fall to Larson-Green to bolster sales of the Xbox gaming console and Surface, Microsoft's first computer. The Surface tablet sold just 900,000 units in each of the fourth and first quarters, according to IDC, and the new Xbox underwent a rocky unveiling over the last several weeks as consumers balked at the price and restrictions on used games. Among the other management changes, Skype president Tony Bates will run a new group for business development and acquisitions and cultivate relationships with developers and computer makers. Tami Reller, who now leads Windows marketing, will oversee a marketing unit. The finance heads for each division will report to Amy Hood, Microsoft's chief financial officer. Previously the CFOs in each unit reported to the head of their respective businesses. Job Cuts Job cuts are likely to follow, particularly in marketing as duties once performed within disparate groups are concentrate under Reller, BGC's Gillis said. "It's absolutely going to be a distraction for the rest of the year and this a critical time for the company," he said. The changes also make it far less likely that Microsoft will consider selling off products such as Bing or Xbox, which had been suggested over the last several years by some investors and analysts, Gillis said. Under the new organization, it's also less likely that Microsoft will continue to break out financial results for Bing and Internet services, Gillis said. Frank Shaw, a spokesman for Microsoft, didn't immediately respond to a request for comment on the potential for the company to cut jobs or shed products. Kurt DelBene, who ran the Office division, is retiring, Microsoft said today. Xbox head Don Mattrick, previously a contender for the hardware post, left to become CEO of Zynga Inc. (ZNGA), a move announced July 1. To contact the reporters on this story: Dina Bass in Seattle at dbass2@bloomberg.net To contact the editor responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net Enlarge image Microsoft Corp. CEO Steve Ballmer Microsoft Corp. Chief Executive Officer Steve Ballmer, center, and employees cheer during the grand opening of a company store in Troy, Michigan, on June 28, 2013. Microsoft Corp. Chief Executive Officer Steve Ballmer, center, and employees cheer during the grand opening of a company store in Troy, Michigan, on June 28, 2013. Photographer: Bryan Mitchell/Bloomberg Enlarge image Microsoft Streamlines Units to Catch Up in Mobile Computing Customers wait in line to enter a Microsoft Corp. store during the grand opening in Troy, Michigan, on June 28, 2013. Customers wait in line to enter a Microsoft Corp. store during the grand opening in Troy, Michigan, on June 28, 2013. Photographer: Bryan Mitchell/Bloomberg via Technology - Google News http://news.google.com/news/url?sa=t&fd=R&usg=AFQjCNGGLmxVtwIPJIXVMEOEsu7XA9qnwA&url=http://www.bloomberg.com/news/2013-07-11/microsoft-pares-unuits-to-emphasize-devices-web-services.html

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