Questions Abound as Rumors Flow about a Major Reorganization at Microsoft

By Ed Silverstein June 06, 2013

Microsoft’s future is once again in the news. Key questions are arising such as: Could Microsoft be split into smaller parts? Could the company find itself less focused on software? Will the company start to embrace new technology early rather than coming on board later – as critics have often charged?

These are just some of the questions that Microsoft CEO Steve Ballmer is said to be considering as the company appears to be moving more toward a “devices and services” focus.

The recent flurry of questions came about after news broke with an All Things D report that Microsoft is weighing a broad reorganization.

Because the company is so large and relied upon by consumers and businesses worldwide, any significant change at Microsoft gains immediate global attention. Rumors are carefully watched.

One rumor is that the company could change the number of its business units and shift more to tech devices and Internet-related services – as opposed to software. News reports said Microsoft could create four divisions: enterprise, hardware, applications, and services and operating systems.

Also, in April, ValueAct Holdings LP, which is a company investor, said it wanted to see Microsoft focus more on Web-based cloud computing.

At the heart of any company change is also the need for Microsoft to gain market share against Apple and Google.

Reorganization also could lead to changing roles for top executives at the company. All Things D is reporting that there could be more important roles for Satya Nadella, president of the Servers and Tools division; Tony Bates, president of the Skype division; and Don Mattrick, president of  the Interactive Entertainment division.

In addition, Bloomberg News is also reporting Andy Lees, who is in charge of corporate development and strategy, may leave the company.

As the company considers its future, one analyst, Rick Sherlund of Nomura Equity Research, recently predicted, “There may be a shift in the wind upcoming for Microsoft, with shareholders potentially demanding a greater say in the direction of the company and how it might be run to drive a better return to shareholders.” He also suggested Microsoft could sell the Bing and Xbox units, news reports said.

There is also the question of why Microsoft is considering changes now. The company’s stock has increased in price by nearly a third in the last six months. But a time of profitability may be among the best times to bring about major changes for a corporation.

“Even with massive sales and continuing development of new products, Microsoft has hit a conceptual wall,” CBS News explained in a recent report. “A swift adoption of mobile devices and ascendency of cloud computing have battered and bloodied the company's old view of a PC-centric computing world in which desktop operating systems and traditional business productivity software reign. Something has to change at the foundational levels of the company, and not just on an organizational chart...The company is no longer king of software, largely because software has taken a back seat to services, whether in the form of inexpensive apps for mobile devices tied to online resources, or cloud computing that will use computer resources more effectively and reduce the aggregate amount of hardware and software needed…Microsoft no longer has absolute control over the client platform.”

In fact, Ballmer suggested changes could be afoot at the company in a letter he sent last year to shareholders.

“There's a remarkable amount of opportunity ahead for Microsoft in both the next year and the next decade,” his letter said. “As we enter this new era, there are several distinct areas of technology that we are focused on driving forward — all of which start to show up in the devices and services launching this year. Leading the industry in these areas over the long term will translate to sustained growth well into the future.”

In the past, Ballmer also has stressed the importance of being focused. For instance, without the right focus, Microsoft fell short on its Kin mobile phone product a few years ago – which the company was forced to cancel. The "No. 1 message from Kin is a message of focus,” he said back in 2010, TechZone360 reported. “You only get so many things you can really talk about, communicate [and] work on with the consumer. You've got to be bold, you've got to look forward and you've got to stay focused.”

Yet, not everyone is seeing the news of possible reorganization with enthusiasm – given Microsoft’s overall approach and Ballmer’s own approaches to the company.

For example, Forbes columnist Adam Hartung said, “This Microsoft reorganization appears to be rearranging the chairs on the Titanic. The mobile iceberg has slashed a huge gash in Microsoft’s PC hull. Leadership keeps playing familiar songs, but the boat cannot float without those historical PC profits. Investors would be smart to flee in the lifeboat of recent share price gains.”

Edited by Alisen Downey

TechZone360 Contributor

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