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Microsoft to enter a ‘new era’ on Thursday with restructuring

Restructuring at Microsoft is expected to be announced later this week. Will this bring fundamental change to the company, or is it a game of musical chairs?

Microsoft is expected to unveil a long-awaited and much-rumoured restructuring on Thursday that would align the company around software and devices.

The first clue that change was underway at Microsoft came last year when Chief Executive Steve Ballmer announced at the company’s annual general meeting that Microsoft should be thought of a devices and services company going forward.

“We will relentlessly focus on delightful, seamless services,” he said at the time.

Sources that spoke to AllThingsD and Bloomberg have painted a clearer picture as to what a Microsoft that is focusing on “delightful, seamless services” might look like from a structural perspective.

Under Ballmer’s reported plan, Windows chief Julie Larson-Green will oversee the company’s hardware efforts from Surface to Xbox and music as well as TV services. Terry Myerson, the current boss of Windows Phone will take over Larson-Green’s position as head of Windows engineering.

Reportedly, former Microsoft gaming boss Don Mattrick was being groomed for Larson-Green’s new position before he left the company to take up the top job at Zynga.

Other shifts include the creation of a cloud computing and enterprise focused unit to be run by Staya Nadella, current head of its server unit. Qi Lu, manager of the online group, would manage a new group that includes engineering responsibilities of Office, Bing and Skype.  Tony Bates, Skype’s current president, moves up to overseeing business development and M&A.

One of the changes that will certainly garner some interest from investors, but will be less apparent to ordinary observers, is a change in the way Microsoft reports profits and losses. Ballmer has reportedly proposed essentially “mashing up” the reporting of the company’s earnings, as opposed to having every unit report its profits and losses separately in the company’s financial report.

Should this get regulatory approval, it would make Microsoft’s quarterly earnings report look better as money losing units would be shielded. Bing, for instance, is a known money loser but is still an integral part of the firm. As a launch of the Xbox One is expected later this year, the hardware division will likely take a financial hit over the next few quarters as consoles are known to be money losers during their first few years.

Musical chairs?

Ballmer’s decision to restructure the company should come as a surprise to few. It’s been oft-talked about for the last year, and stories of the impending restructuring have emerged every few months in the press.

As Vanity Fair documented to the less technology-literate crowd in August of last year, Microsoft’s last decade was a lost one. The piece points fingers at Ballmer for shepherding complacency instead of innovation and ignoring dramatic changes in how the paradigm of computing was accepted by most people. Granted, the tone of the article isn’t overly fair as Microsoft is a mature company that can’t experience the growth rates of a mobile focused company simply because it already had its growth spurt.

Interestingly, the author the piece may have foreshadowed a series of events that is to come — starting with Thursday’s restructuring — in his concluding paragraph.  “Ballmer may be invaluable for the company’s future. Because the time may be coming when the sprawling Microsoft empire will have to be busted up, like any other company that has spread itself too thin into too many product lines. And a deal-maker like Ballmer is just the type to lead that kind of massive corporate reorganization.”

Is Microsoft on the road to a breakup? Maybe. But such a dramatic shift to the anchor of America’s technology industry isn’t coming on Thursday with this game of musical chairs. Such a change, however, shouldn’t be ruled out if Microsoft spends the next few quarters in the doldrums.

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