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1/11/2011
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Microsoft Server Chief Axed Over Cloud Strategy?

Analyst believes Steve Ballmer felt Bob Muglia was not the right man to lead the company's Azure efforts.

Microsoft CEO Steve Ballmer may have dismissed Bob Muglia from his role as head of the company's $15 billion Server and Tools Business unit because he felt Muglia was not the right individual to lead Redmond into the cloud computing age, according to one analyst.

"Our key conclusion from the management change is that Ballmer feels that new leadership is needed to navigate Microsoft's evolution to the cloud," said Wells Fargo Securities analyst Jason Maynard, in a research note.

Still, Maynard said he was "very surprised to see Muglia's departure since STB has arguably been the top performing unit in Microsoft. We have always been impressed with Muglia during our meetings over the years and thought he was on top of the space."

Ballmer disclosed his decision to remove Muglia as head of STB in an e-mail to employees Monday but provided only vague reasons for the move. "This is simply recognition that all businesses go through cycles and need new and different talent to manage through those cycles," Ballmer wrote.

Ballmer said that, in light of the decision, Muglia will leave Microsoft following a transition period. A replacement has yet to be named.

Microsoft's efforts around cloud computing, under which corporations tap software and data over the Internet instead of through in-house servers, are marketed under its Windows Azure brand. Gauging Azure's success to date is difficult. Though the company has announced some high-profile Azure accounts, including Yahoo and Novell, it does not provide specific financial results for the Azure line.

Overall, Microsoft's STB group was doing well under Muglia. In its most recent fiscal year, ended June 30, STB posted a 5% year-over-year gain in revenue, to $14.9 billion, and a 14% increase in operating profit, which came in at $5.5 billion.

Still, Wells Fargo's Maynard noted that there were some weak spots in the group's performance. "On the negative side, however, the Hyper-V virtualization product to date has not yet seemed to put a dent into VMWare's business," Maynard wrote in his research note.

Ballmer said Muglia would remain with Microsoft through the summer, and that he's considering internal and external candidates to replace him. Microsoft shares were off 1.33%, to $28.22, in Monday trading.

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