SAN FRANCISCO (AP) — Microsoft Corp. has decided its entire business needs a new operating system.
CEO Steve Ballmer is restructuring the company to cope with a quickening pace of technological change that has left the world's largest software maker a step behind its two biggest rivals, Apple and Google.
In an effort to catch up, Microsoft is dismantling a management structure that separated the company into sometimes disjointed divisions and hatching a more cohesive product line-up. The new set up revolves around software, devices and services connecting those devices to applications stored in remote data centers — a concept that has become known as "cloud computing."
The move comes amid a lukewarm response to the latest version of Microsoft's flagship Windows operating system and a steady decline in demand for personal computers as people increasingly rely on more convenient smartphones and tablets.
If things pan out the way Ballmer envisions, the shake-up announced Thursday will foster more rapid innovation and sharpen the company's focus on countering the threat posed by mobile devices running on software made by Apple and Google while laptop and desktop computers powered by Windows lose their luster. He is hoping a more closely-knit organization making the software and services that run smartphones, tablets, the Xbox video game console and, yes, PCs will re-establish Microsoft's reputation as "a company that helps people get stuff done."
"We are ready to take Microsoft in bold new directions," Ballmer told analysts and reporters during a conference call.
Ballmer, 57, can't afford to lose his way now. If he does, Microsoft could be even further eclipsed by its rivals. That, in turn, could disillusion investors already exasperated with the lackluster performance of Microsoft's stock since Ballmer succeeded his close friend, company co-founder Bill Gates, as CEO 13 years ago.
During Ballmer's reign, Microsoft's stock has slipped by nearly 40 percent even as the company's annual revenue has roughly quadrupled from $20 billion to nearly $80 billion. The bellwether Standard & Poor's 500 has climbed by 14 percent during the same time while Apple's stock price is nearly 17 times higher. By the time Google went public, Ballmer had already been Microsoft's CEO for four years. Since then, Google's stock has risen tenfold. Both Apple and Google now boast higher total market values than Microsoft.
Microsoft's stock gained 99 cents Thursday to close at $35.69. The shares have surged 24 percent in the past three months, partly because the company's revenue is holding up better than many analysts expected, despite five consecutive quarters of declining PC sales. Some recent buyers of Microsoft's stock had been betting the company would do something even more dramatic, such as spinning off a division or shedding its unprofitable Internet search engine, Bing, said BGC Financial analyst Colin Gillis. Neither of those appears likely, now that Ballmer has reshuffled the business.
Gillis views the changes as Ballmer's tacit acknowledgement that Microsoft had become bogged down in bureaucracy and second-guessing — and an admission that there was too much internal strife as various factions formed to protect their turf.
"We have to make the right decisions more quickly," Ballmer said. The company's motto now: "One Microsoft all the time."
Ballmer appears to have the right idea, although it would have looked even smarter had he done it shortly after it became clear that Apple's 2010 release of the iPad was reshaping the tech market, said Gartner Inc. analyst David Cearley.