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Microsoft Is Said to Seek More Management Changes

Microsoft Corp. Chief Executive Officer Steve Ballmer plans to extend a management shake-up aimed at adding senior product executives with an engineering background, two people with knowledge of the decision said.

Changes may be announced this month, said one of the people, who declined to be named because the plans are private. Last month, Ballmer pushed out server division president and 23- year company veteran Bob Muglia, saying the company needed new leadership that could focus on areas such as cloud software.

The move would expand on an effort to promote managers who have engineering skills and experience executing product plans -- a bid to catch up with rivals such as Apple Inc. and Google Inc. in Web services, smartphones and tablet computers. The overhaul also may quell criticism from the board and investors that Microsoft is falling behind in some markets. Four top executives have left the company since May.

“You see the engineering team ascending because Steve is realizing that there is a need to execute on a vision and in order to do that you have to actually understand how software is built,” said Wes Miller, an analyst at the Kirkland, Washington-based research firm Directions on Microsoft. “It’s a whole other thing to be able to say, ‘I’ve been at Microsoft, I understand software, and what you are saying will or will not work.’”

Frank Shaw, a spokesman for Redmond, Washington-based Microsoft, declined to comment.

Cloud Computing

The CEO wants to rectify Microsoft’s misfires in mobile phones and tablet computers, as well as ensure that the company doesn’t fall behind in cloud software. Cloud technology lets customers store their applications and information in remote data centers and access them over the Internet.

Muglia’s replacement will most likely be an executive who knows how to combine server software with Web-based services, one of the people said. Shuffling the management team also would let Ballmer re-exert his influence amid mounting criticism from investors, the people said. Microsoft’s stock price is only up 2 percent over the past year, compared with an 83 percent gain at Apple and 16 percent at Google.

The shares rose 9 cents to $28.28 at 4 p.m. New York time on the Nasdaq Stock Market.

Tablet Threat

Investors are concerned that the company is falling too far behind in tablet computers and mobile phones, Tony Ursillo, an analyst at Loomis Sayles & Co. in Boston, said last month. Those devices could replace some personal-computer purchases, hurting revenue from Microsoft’s Windows operating system, he said.

Microsoft’s board has voiced concerns about Ballmer’s leadership as well, citing the company’s performance in mobile phones and new types of computing devices, according to a September regulatory filing.

Ballmer received 100 percent of his target bonus for the past fiscal year, instead of a maximum of 200 percent, because of the failure of a mobile phone called the Kin, the loss of market share in smartphone software and the need for more innovation in that area, the board said in the filing.

Ballmer has already shown a desire to appoint engineers or product experts to run divisions. Stephen Elop, who left to run Nokia Oyj in September, was replaced by engineering chief Kurt DelBene, rather than marketing executive Chris Capossela. Elop had run Microsoft’s business unit, its biggest source of sales.

When Chief Software Architect Ray Ozzie announced plans to step down in October, Ballmer declined to replace him in that central role, saying the company had “strong technical leaders in each business group.”

The effort may take some of the heat off Ballmer, so long as it produces results soon, Miller said.

“You can play pin the blame on the donkey, but the reality is Steve has to accept some of the blame,” he said. “He also has to put the right people in the right places.”

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

To contact the editor responsible for this story: Tom Giles at tgiles@bloomberg.net

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