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Microsoft Reorganizes; President Belluzzo Is Out

April 04, 2002|KAREN KAPLAN and JOSEPH MENN | TIMES STAFF WRITERS

Microsoft Corp. announced an unexpected shake-up in its management structure Wednesday that includes the resignation of President and Chief Operating Officer Rick Belluzzo just 14 months after he assumed the posts.

The reorganization ends an awkward 21/2-year relationship between the software behemoth and Belluzzo, a veteran of Silicon Valley hardware stalwarts Hewlett-Packard Co. and Silicon Graphics Inc. Since joining Microsoft in September 1999, insiders say he failed to embrace the company's distinctive corporate culture--a shortcoming that led to his ouster.

Microsoft said the reorganization will give more autonomy to the leaders of the company's core business units, including those focusing on the Windows operating system, the MSN Internet service, Business Solutions and the home and entertainment markets. All of those units will now report directly to Chief Executive Steve Ballmer.

"We realized we needed to give our core leaders deeper control and accountability in the way they run their businesses," Ballmer said in an e-mail to employees.

Belluzzo, 48, will stay on as president and chief operating officer until May 1 and remain with the company through September to ensure that the transition goes smoothly, the company said.

For his part, Belluzzo said the change will give him the opportunity to return to a role as CEO, a position he held for less than two years at Silicon Graphics, the Mountain View, Calif.-based maker of high-performance computers.

An e-mail from Belluzzo to employees seemed to suggest that his pending departure wasn't entirely of his own choosing. "While the new organization structure affects me personally, I'm pleased with the direction we are taking to give the individual business owners greater control and accountability for their goals," he wrote. He also said that it was the right time to pursue his goal of leading his own company.

The reorganization, which was announced after the markets closed, initially came as a surprise to Wall Street. But analysts later said the decision made sense.

"Belluzzo is a hardware guy in a software world," said Brendan Barnicle, senior research analyst with Pacific Crest Securities in Portland, Ore. "With the charismatic leaders Microsoft has in [Bill] Gates and Ballmer, it's hard to see where a third leader can fit in."

Investors took the news in stride. After dropping 97 cents to close at $56.33 in regular Nasdaq trading Wednesday, Microsoft shares recovered some of the loss in after-hours trading.

Microsoft employees said that Belluzzo had been a poor fit culturally at the insular company, which tends to rotate high achievers through a multitude of jobs.

Few outsiders have come to Microsoft at high levels in the organization and done well. And Belluzzo, with 25 years of experience in more buttoned-down companies, didn't follow the lead of Ballmer and other top executives who spent long hours in the office and then saw co-workers socially.

Among other things, Belluzzo chose to live in Seattle, not in the East Side communities where many workers reside near the Redmond, Wash., corporate campus. And some employees said they weren't sure Belluzzo ever developed a deep knowledge of the company's far-flung businesses.

They also said they were concerned that the centralizing process that began with Belluzzo's elevation to president appeared to be reversing, with at least seven units reporting directly to Ballmer.

The reorganization comes a day after Rick Sherlund of Goldman Sachs reduced his earnings projections for the company. But Microsoft has not issued an earnings warning for the quarter ended March 31, as it has when it knew it would disappoint investors.

"There are no operational decisions we ever make because of a quarter's worth of business," Microsoft spokesman Corey duBrowa said. "This is about looking toward the future growth of the company."

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Kaplan reported from Los Angeles and Menn from San Francisco.

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