Microsoft Ponders Major Restructuring, Amid Renewed Wall Street Focus on Stock

According to sources close to the situation, Microsoft CEO Steve Ballmer is working on what is likely to turn into a significant restructuring of the massive software company, which could also move several current execs to more prominent roles.

Sources noted that the changes — which center on solidifying Microsoft into the “devices and services company” that Ballmer wrote about in his annual shareholder letter last October — are still being worked out, and could still change substantively.

But, noted several people close to the situation, the new configuration could include larger roles for several execs, including Satya Nadella, president of its Servers and Tools division; Tony Bates, president of its Skype communications division; and Don Mattrick, president of its Interactive Entertainment division.

How their new and perhaps expanded roles and those of others in top management will shake out is unclear.

What seems likely is an organizational structure that will focus on configuring Microsoft around devices and services, both in the enterprise and the consumer space, and simplifying its management. Currently, Microsoft has a rather convoluted set-up, with other major units such as Business Solutions, Online Services and Microsoft Office.

But how Microsoft’s flagship software product, Windows, fits into the new org is still under debate.

Wrote Ballmer about the changes for Microsoft last fall: “This is a significant shift, both in what we do and how we see ourselves — as a devices and services company. It impacts how we run the company, how we develop new experiences, and how we take products to market for both consumers and businesses.”

The possible restructuring comes amid increasing investor pressure on Microsoft and, interestingly, a recent run-up in its stock.

Nomura Equity Research analyst Rick Sherlund, who has covered the company since it went public, wrote last week that “there may be a shift in the wind upcoming for Microsoft, with shareholders potentially demanding a greater say in the direction of the company and how it might be run to drive a better return to shareholders.” In his note, Sherlund recommended that Microsoft consider selling off its Bing search business, as well as its Xbox gaming unit.

This focus on shareholder returns has again come into sharper relief since it was disclosed that ValueAct Capital had bought about 1 percent of Microsoft’s stock, and Sherlund noted that this stake could allow the hedge fund to push for change “with the support of others to advance their agenda for change.”

But unlike a more pugnacious previous effort to spur change at Microsoft by Greenlight Capital’s David Einhorn, ValueAct’s Jeff Ubben has been more dulcet in his tone, noting that Microsoft’s strong software background and enterprise strength was key when combined with future trends, such as cloud computing.

“Microsoft could be the largest cloud company in the world,” Ubben said in a recent speech.

That’s an open question still, but investors are certainly warming to Microsoft, after a long period of weak stock performance. Interestingly, over the last six months, Microsoft shares have risen more than 31 percent, perhaps in anticipation of some change to come.

A Microsoft spokesman declined to comment.