Microsoft Flops Stir Shakeup TalkMicrosoft Flops Stir Shakeup Talk

Microsoft may be poised to reorganize its flagging hardware unit in the wake of declining sales and some recent, less-than-spectacular product introductions.

J Allard, chief experience officer and chief technology officer of Microsoft's Entertainment and Devices Division—which houses the Xbox, Zune, and Windows Mobile platform—is stepping down from his position, according to a report published Monday by The Wall Street Journal.

The newspaper, citing unnamed sources, also suggested that EDD group president Robbie Bach may be affected by the shakeup.

The report comes as Microsoft's hardware business is under siege from aggressive competitors and the company's own failure to introduce a mindshare-seizing blockbuster in the manner of, say, Apple's iPad.

In the first nine months of Microsoft's 2010 fiscal year, hardware and hardware-related sales were down 5% year-over-year, to $6.5 billion. Xbox and PC game revenue fell 5% during that period, while Windows Mobile and Zune revenue was off 4%.

Most troubling for Microsoft CEO Steve Ballmer is surely the fact that his company has, amid considerable fanfare, introduced a series of products that turned out to be also-rans or outright flops while rival Apple launches blockbuster after blockbuster including, most recently, the million-unit selling iPad.

An open question is how long Ballmer himself will continue to receive a pass from Microsoft's board and institutional investors.

Only weeks ago, Microsoft touted the debut of its KIN phones—a pair of mobile devices geared toward social networkers.

"The social generation wants more and needs more from their phone," said Bach, at the time of the launch. "KIN is the one place to get the stuff you care about to the people you care about most," he added.

But after less than two months on the market, KIN already appears to be a bust. Initial reviews were tepid, at best, and Amazon recently cut its price for the more advance KIN Two by 50%, and it's giving away KIN One for a penny for customers who sign up for a service contract.

Microsoft now holds just a 6.8% share of the mobile market, down from 10.2% a year ago, according to Gartner. It's not just Apple that Microsoft has to worry about in the phone market--Google is fast becoming a major player with its Android-based smartphones.

Adding to the chaos at Microsoft's hardware group is the fact that long-time partner Hewlett-Packard appears ready to go it alone after agreeing to purchase Palm, and its WebOS technology, for $1.2 billion last month. Shortly after the deal was announced, word leaked that HP cancelled plans for a Windows 7-powered tablet that was supposed to challenge the iPad.

The Zune MP3 player, of course, is an afterthought, but even Microsoft's highly successful Xbox franchise is under pressure as consumers eye mobile gaming, the Nintendo Wii, and alternate platforms like the iPad. Microsoft shipped 1.5 million Xbox units in its most recent quarter, compared to 1.5 million units in the same period a year ago.

Reports indicate Microsoft could announce formal changes within its EDD group as early as this week. Company officials could not immediately be reached for comment.