June 15 (Bloomberg) -- Bill Gates will step down from his day-to-day role at Microsoft Corp. in July 2008, three decades after founding the software maker that now controls almost 95 percent of the world's personal computers.

Gates, 50, will remain chairman after that and focus on the charitable foundation he runs with his wife. Ray Ozzie will immediately assume Gates's job of chief software architect, and Craig Mundie will become chief research and strategy officer, the Redmond, Washington-based company said today in a statement.

``I believe we can make this transition without missing a beat,'' Gates said on a conference call.

The announcement comes as Microsoft struggles to convince investors that it can stay ahead of competitors after losing ground in Internet search to Google Inc., the world's most-used search engine, and stumbling with the release of its latest Windows operating system. Chief Executive Officer Steve Ballmer will remain in his role, charged with reviving sales growth and a stock price that has tumbled 16 percent this year.

``This is the beginning of a major change of the guard at Microsoft,'' said Rob Enderle at the Enderle Group in San Jose, California. ``This probably heralds one of the biggest changes in the firm that it's ever experienced.''

Gates, a Harvard University dropout, founded Microsoft in 1975 with childhood friend Paul Allen to tap the emerging market for software to run the first computers small and inexpensive enough for many homes and businesses. The idea propelled Microsoft to dominance and made Gates the world's richest man.

Microsoft shares fell 25 cents to $21.82 in extended trading. They earlier rose 19 cents to $22.07 in Nasdaq Stock Market composite trading. The stock is the second-worst performer in the Dow Jones Industrial Average this year behind Intel Corp.

`Disproportionate Attention'

Both Ozzie and Mundie were chief technical officers for Microsoft before today's announcement. They will step into Gates's role and set Microsoft's strategy.

``The world has had a tendency to focus a disproportionate amount of attention on me,'' Gates said. ``In reality, Microsoft has always had an unbelievably strong depth and breadth of technical talent.''

Mundie, 56, started at the world's largest software maker in 1992 to run the division responsible for consumer products outside of PCs. He most recently helped with some of the company's software development strategy. Mundie, who has described himself as Microsoft's ``Secretary of State,'' also leads negotiations on intellectual property and piracy issues.

Living Software

In the year that Ozzie, 50, has spent at Microsoft, the founder of Lotus notes has grown in influence as the company tests ``live'' software that links the Windows operating system with real-time data over the Internet. Ozzie has been leading services strategy across each of the company's three units.

Ozzie wants to use Internet-based services to catch up with Google and last November said the Mountain View, California-based competitor has done an ``amazing job'' with search ads. ``We've all learned quite a bit from them, and all of us have been refining at an aggressive pace,'' he said then.

Gates will work with Ozzie for the next two years as responsibility for Microsoft's products shifts over to Ozzie.

``Today is not a retirement,'' Gates said. ``It's a reordering of my priorities.''

`Big Dreams'

Gates, who told the board of his plans at an unscheduled meeting on June 13, has been reducing his involvement at Microsoft for the past six years. He stepped down as CEO in January 2000, handing the job to Ballmer, who Gates first met when they lived down the hall from each other at Harvard University. Gates stayed as chairman and took on the new role of chief software architect to lead development of Microsoft's products.

``When Paul Allen and I started Microsoft over 30 years ago, we had big dreams about software,'' Gates said. ``It's been amazing to see so much of that dream become a reality.''

The company they formed grew into a behemoth whose software was used on nearly every PC in the world. Word, Excel, Microsoft Outlook and Internet Explorer became the dominant tools for navigating the PC and the Web.

``Bill's legacy in this industry is set,'' said Sam Jadallah, a general partner of Mohr, Davidow Ventures, a venture capital firm in Menlo Park, California. Jadallah, 41, worked at Microsoft from 1987 to 1999. ``He literally helped create the industry so he was a symbolic and technical leader at Microsoft.''

Changing Focus

As he turns his focus away from Microsoft, Gates leaves behind a company that has failed to keep pace with competitors such as Google and Apple Computer Inc. A push into music players and mobile phones didn't pan out, and costs from Microsoft's Xbox game console have dragged on profit in recent quarters.

Ballmer, 50, has presided over a more than 60 percent decline in Microsoft's stock since he took over. The drop has prompted the company's biggest investors to call for more buybacks after a $30 billion repurchase was announced in 2004.

A surging share price in Microsoft's earlier years helped Gates become the world's youngest self-made billionaire in 1987, at age 31. Forbes magazine put his net worth at $46 billion in 2003.

In recent years, Gates became increasingly focused on philanthropy in education and world health. He and wife Melinda had endowed their Bill & Melinda Gates Foundation with more than $28.8 billion as of January 2005 to provide vaccinations in poor countries, research cures for AIDS and install computers in libraries and schools.

Gates said the change will enable him to work part-time at Microsoft and full-time for the foundation, the opposite of his time allocation now.

``Microsoft and Bill Gates are synonymous,'' said Tim Boyd, an analyst at Caris & Co. who rates the shares ``average.'' ``This is an indication that going forward that Microsoft will be a very different company than what we're used to.''

To contact the reporter on this story: Dina Bass in Seattle at Dbass2@bloomberg.net; Jonathan Thaw in San Francisco at jthaw@bloomberg.net.

Last Updated: June 15, 2006 20:52 EDT