March 23 (Bloomberg) -- Microsoft Corp. promoted Steven Sinofsky, a protégé of Bill Gates, to run its Windows and Internet unit after development delays caused the world's biggest software maker to postpone the latest version of its operating system until next year.

Sinofsky, 40, will replace Jim Allchin, a 16-year Microsoft veteran, running Windows. Will Poole will be removed as head of Windows Client and Sinofsky will lead planning for future Windows versions, Redmond, Washington-based Microsoft said today in a statement. The company also said it will delay the availability of its new Office programs to coincide with the Windows release.

Sinofsky's biggest challenge will be to speed up software releases and take market share from Google Inc.'s Internet programs. The executive changes are part of an overhaul begun by Chief Executive Officer Steve Ballmer in September designed to accelerate development and combat growing competition.

``Microsoft's ability to control the product development processes and meet deadlines is seriously broken,'' said Roger Kay, an analyst at Endpoint Technologies Associates Inc. in Wayland, Massachusetts. ``Sinofsky is definitely the right flavor of guy to fix this. Now the top of the organization begins to look like professional managers.''

Shares of Microsoft, up 2.7 percent this year, fell 30 cents to $26.85 as of 4 p.m. New York time in Nasdaq Stock Market composite trading.

Hobbled

Microsoft this week delayed the next general release of Windows, Vista, until next year. Microsoft's biggest and most profitable product has been hobbled by product delays that have left the company peddling a five-year-old product.

Allchin, 54, will retire when Vista is completed. Brian Valentine will be in charge of getting Vista released. After that, Valentine's position and the role of the engineering group he runs will be evaluated, Microsoft said.

Vista was already two years late before the most recent holdup, which will cost Microsoft almost $500 million in sales in the December quarter, according to Charles Di Bona, an analyst at Sanford C. Bernstein & Co. in New York. The delay also will cut more than $4 billion in sales of computers this year, according to Gartner Inc. analyst Charles Smulders. Windows runs almost 95 percent of the world's personal computers.

The changes reflect a demotion for Poole, who will oversee market expansion, and a move to push Allchin aside, said Rob Enderle, president of San Jose, California-based researcher Enderle Group. Allchin will work with Valentine on Vista, Microsoft said.

September Reshuffle

Ballmer in September merged the MSN and Windows units under Kevin Johnson to compete with Mountain View, California-based Google, the most-used search engine. Johnson, 45, who designed today's moves, said the changes are intended to put Windows on target to deliver growth and timely product upgrades. He denied any executives were punished for Vista delays.

``My focus has nothing to do with the past,'' he said in an interview. ``I was not looking back.''

Johnson, who will oversee eight groups including Sinofsky's, plans to accelerate hiring and spending on Microsoft's efforts to merge its software with new Internet services.

The spending will be focused on increasing Microsoft's sales of display advertising, improving Internet and PC search, rolling out the adCenter search-advertising service and building up network capacity through new datacenters and fiber-networks. He declined to specify how much spending would increase.

Sinofsky currently runs Microsoft's $11 billion Office business. A former technical assistant to Gates, 50, Sinofsky is known for keeping tightly to schedules and for being ``ruthless'' in refusing projects if they will delay the product, said Rob Helm, an analyst at Kirkland, Washington-based market research firm Directions on Microsoft.

Office

``His reputation is that he's a guy who does what he needs to ship code,'' said Michael Gartenberg, an analyst at Jupiter Research in New York.

The retail version of Sinofsky's current product, the Office word processing and e-mail software, will also come out in January so the new Windows and Office can hit stores at the same time, said Melissa Havel, a spokeswoman for Microsoft. Office will be available to business customers this year.

The Office delay will have little impact on Microsoft and computer sales because Microsoft gets only a small percentage of its Office sales from retail, said Joe Wilcox, an analyst at Jupiter Research. The new version is generally not a catalyst for customers to buy new machines.

Broader Roles

Microsoft wants Vista to generate as much enthusiasm among consumers as Windows 95, Gartenberg said. Instead, the company runs the risk of it turning into Windows Millennium Edition, which came out in 2000 to little fanfare, he said.

``This whole project has been handled poorly from day one,'' Gartenberg said. ``It's not just the delays, it's that they also keep cutting features.''

Johnson and his executives will also need to boost Microsoft's sagging Internet efforts, where MSN has been lagging behind Google in both market share and in bringing new products to consumers. Google beat MSN in introducing products such as PC search and satellite mapping.

Martin Taylor, 36, credited with helping Microsoft beat back the threat of the free Linux operating system, will be brought in to improve marketing for MSN and Windows Live.

David Cole, who ran the MSN unit, will lead advertising sales, marketing and business development for Windows live and MSN.com before a one-year leave of absence. Taylor will report to Cole.

Yusuf Mehdi, who led Microsoft's Internet search and advertising efforts, will be in charge of Microsoft's online advertising strategy.

Blake Irving will handle the engineering and support on Microsoft's Live Internet services. Irving had run Microsoft's Hotmail free e-mail, Spaces Weblog and instant messaging programs.

To contact the reporter on this story: Dina Bass in Seattle at dbass2@bloomberg.net

Last Updated: March 23, 2006 18:40 EST