Microsoft rumored to be planning broad reorg for entertainment/games division

Microsoft is planning a broad shakeup in the management of its division that makes video games, mobile phones, and music devices, according to a report in the Wall Street Journal.

Microsoft hasn’t yet commented. But the Journal says the reorganization goes beyond the rumored departure of J Allard, the one-time star who serves as the chief technology officer of the Entertainment & Devices group which is headed by longtime Microsoft executive Robbie Bach.

The group is making money, largely because of the strong performance of the Xbox 360 hardware and software. (In the past, the game business caused billions of dollars in losses). Microsoft has sold more than 40 million units of the Xbox 360, which is almost twice as many units as the original Xbox game console. Microsoft and its partners have also sold about eight games for every console. All of that adds up to billions of dollars in revenue and it has made the group intermittently profitable.

But Entertainment & Devices is also Microsoft’s frontline against Apple and Google. The Zune family of music players has captured less than 1 percent market share compared to the Apple iPod’s 75-percent-plus share. And Microsoft’s phone efforts — both Windows Mobile software and Kin hardware — pale in comparison to the iPhone sales. Allard headed the design of the products that were supposed to compete against Apple. But Microsoft recently scuttled an e-book reader called the Courier which Allard’s team had designed to compete with the iPad. Allard is now on a leave of absence. Meanwhile, Microsoft’s attempts to diversify beyond Windows and video games haven’t gone well.

The Journal said that a reorganization of the division could happen as early as this week. Overall, the division accounted for $1.67 billion in sales in the third calendar quarter ended March 31. That was 11 percent of the $14.5 billion generated in the quarter.

During this generation of consoles, Microsoft has sold more hardware units than Sony’s PlayStation 3. That is impressive, considering Microsoft had a very late start in the console video game business relative to Nintendo and Sony. But if there is going to be a shakeup in Microsoft’s Redmond, Wash. headquarters, it looks like competing as usual is no longer an acceptable answer for Microsoft executives.

[photo credit: Business Insider]

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