Is Microsoft Giving Itself an Overhaul?

Microsoft could be making some big internal changes. Shareholder pressure may be one catalyst, but it’s not clear what the changes will be or what the goal is.

According to people familiar with the matter, Microsoft Chief Executive Officer Steve Ballmer is planning to do some restructuring of the company to improve the company’s ability to focus on being a “devices and services company.” The restructuring could change a number of executive roles as well.

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Ballmer had mentioned the plan to focus on devices and services in a letter to shareholders last October. The people familiar with the matter said the changes to reach those ends are still being worked on and could still be altered. However, no other direction for restructuring has been suggested.

The people said that the roles of Satya Nadella, Tony Bates, and Don Mattrick could become more prominent. Satya Nadella is the president of Microsoft’s Servers and Tools division, Tony Bates is president of the Skype communications division, and Don Mattrick is president of the Interactive Entertainment division, which works on the Xbox.

One possible change to the organization would be to separate Microsoft’s operation into enterprise business and consumer business, and then subdivide those into devices and services. This would be a major shift from Microsoft’s current breakup of units, and it could shift current executives into more overarching roles. One thing that’s missing from the suggested reorganization is a spot for Microsoft’s flagship operating system, Windows.

The changes might make investors happy, but it could also just be what Microsoft is doing to keep investors from getting upset and increasing pressure on the company. Even though Microsoft’s stock has risen over 31 percent in the last 6 months, shareholders may be pressuring for change to keep the value going up.

Nomura Equity Research analyst Rick Sherlund has suggested that it may start “demanding a greater say in the direction of the company and how it might be run to drive a better return to shareholders.” Sherlund suggested the Microsoft sell of Bing and its Xbox Unit. The sales would certainly generate revenue that could be passed on to shareholders, but it might be a short turn of profit.

Considering that sales in the Xbox unit improved in the most recent quarter by a dramatic 56 percent, bringing the revenue from it up to $2.53 billion, it might turn a quick buck, but it could be even better to hang onto as a continuing source of revenue.

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Greenlight Capital (NASDAQ:GLRE) tried to get Microsoft to make some changes, and now ValueAct Capital, which recently bought a one percent stake in the company, could be trying to do the same. However, the firm may instead just have faith in Microsoft. ValueAct’s Jeff Ubben praised Microsoft’s strong background in software and enterprise business. Ubben may be hoping that Microsoft invigorates its pursuit of cloud computing, suggesting that “Microsoft could be the largest cloud company in the world.”

Despite ValueAct taking a stake that could allow it to push for a change at Microsoft, it seems that there may be some faith in the company already making the necessary changes to perform on the road ahead.

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