Microsoft to Change Management at Device Division

Microsoft HQ
Microsoft HQ

Several media accounts report that Microsoft (MSFT) will change management at its device division. The actions are, according to early speculation, a reaction to the rise of Apple (AAPL) and Google (GOOG) in the consumer electronics sector. But the trouble goes deeper than that.

Microsoft's 10-Q shows that in the last quarter, ending March 31, revenue in the "Entertainment and Device Division" fell slightly to $1.67 billion. The unit made only $138 million. The operation's sales are primarily made up of revenue from the Xbox 360, which has struggled against the Nintendo Wii and has remained only sightly ahead of the sales of the Sony (SNE) PS 3. The other product sold by the division is the failed Zune multimedia device, which was meant to compete with Apple's iPod.

The device operation hasn't produced a major product since the Xbox 360. In the meantime rivals have introduced a number of new smart phones, netbooks, e-readers, and tablet PCs. Microsoft is essentially competing with dozens of companies, from Barnes & Noble (BKS) to China cell phone manufacturer HTC.

Windows Mobile, the company's wireless OS, has also been a failure. It has lost ground to Nokia's Symbian operating system, RIM's (RIMM) OS for the Blackberry, Apple's OS for the iPhone and Google's new Android system, which has been adopted by handset companies with breathtaking speed.

To remedy some of its problems, "The company will have a new smart phone operating system later this year," according toThe New York Times. But consumer preferences for products from Apple, HTC and several other successful smart phone companies make it nearly impossible to imagine how the world's largest software company can catch up, coming from so far behind its competition.