Shakeup at Microsoft device division

Microsoft’s Robbie Bach, head of the video games and mobile phones unit, is retiring in a management shuffle, as CEO Steve Ballmer tightens his grip over a division steadily ceding ground to rivals.

The departure of the 22-year veteran, credited for launching the Xbox in 2001, comes as the world’s largest software maker is being brushed aside by Apple’s iPhone and Google’s Android operating system in a fast-growing but increasingly crowded smartphone market.

“It’s maybe time for new leadership,” said analyst Matt Rosoff of independent research firm Directions. “They’ve really been struggling to get traction in mobile for some time.”

Bach will retire this autumn at the age of 48, Microsoft said. He has led the entertainment and devices unit since its creation in 2005, and was responsible for the original launch of the popular Xbox gaming console in 2001.

From July 1, the two senior vice presidents in charge of games and phones, Don Mattrick and Andy Lees, respectively, will report to CEO Ballmer.

The move replicates events at Microsoft almost two years ago, when Ballmer appointed two executives to take control of the key Windows unit after the departure of executive Kevin Johnson. Bach made no mention of a new job in a statement, saying he would be spending more time with his family and on nonprofit projects.

Entertainment and devices is the fourth-largest of Microsoft’s five operating units – behind its Windows, Office and server units – and is on track to post more than $8bn in revenue for the year ending June 30.
Last quarter, it contributed 11 per cent of Microsoft’s overall sales and 3 per cent of its operating profit.

The unit developed the highly successful Xbox game system, but has so far failed to make an impact with its Zune digital music player and is losing ground in mobile and smartphones.

Only 10 per cent of smartphones sold in the United States in the first three months of this year run Windows software, according to retail research firm NPD Group. That is well behind Apple with 21 per cent, Google with 28 per cent and BlackBerry-maker Research in Motion with 36 per cent.

Worldwide, Google’s Android passed Microsoft’s Windows as the fourth most popular smartphone operating system in the first quarter, according to research firm Gartner, behind Apple, RIM and Nokia’s Symbian system.

Recognising its problems, Microsoft announced a completely new software system for phones earlier this year, called Windows Phone 7, which is scheduled to hit the market in a new range of handsets for this year’s holiday shopping season.

Some questioned the timing of Tuesday’s announcement, as Microsoft gears up to unveil Natal -- its revolutionary hands-free gaming system -- at the E3 gaming show in mid-June. The company is also launching the next instalment of its blockbuster Halo game in September.

The timing is “awkward,” said Mike Hickey, an analyst at Janco Partners Inc, but Microsoft’s plans appear to be intact.

“The initial worry is ‘Uh oh, something is wrong’,” said Hickey. “What’s important from a product perspective is that all of their holiday launches are still on track -- Natal, Windows Phone 7, Halo Reach. So it doesn’t look like it’s a response to potential disruption in the near-term pipeline.”

J Allard, the entertainment and device unit’s chief technology officer – a 19-year Microsoft veteran who led the development of the Xbox game system and Zune music player – is also leaving the company.

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