Microsoft Corp. replaced the chief of its division focused on mobile phones, videogames and other consumer devices Tuesday, allowing two lower executives to report to Chief Executive Officer Steve Ballmer.
The move comes as the world's largest software maker is being brushed aside by Apple Inc's iPhone and Google Inc's Android operating system in the fast-growing smart phone market.
A 22-year Microsoft veteran, Robbie Bach will retire this autumn at the age of 48, Microsoft said. Bach led the entertainment and devices unit since its creation in 2005 and was responsible for the original launch of Xbox in 2001.
From July 1, the two senior vice presidents in charge of games and phones, Don Mattrick and Andy Lees, respectively, will report to CEO Ballmer.
"It's maybe time for new leadership," said analyst Matt Rosoff of independent research firm Directions on Microsoft. "They've really been struggling to get traction in mobile for some time."
Entertainment and devices is the fourth-largest of Microsoft's five operating units - behind its Windows, Office and server units - and is on track to post more than $8-billion in revenue for the year ending on June 30.
Last quarter, it contributed 11 per cent of Microsoft's overall sales and 3 per cent of its operating profit.
The unit developed the highly successful Xbox game system, but has so far failed to make an impact with its Zune digital music player and is losing ground in mobile and smart phones.
Only 10 per cent of smart phones sold in the United States in the first three months of this year run Windows software, according to retail research firm NPD Group. That is well behind Apple with 21 per cent, Google with 28 per cent and BlackBerry-maker Research in Motion Ltd with 36 per cent.
Worldwide, Google's Android passed Microsoft's Windows as the fourth most popular smart phone operating system in the first quarter, according to research firm Gartner, behind Apple, RIM and Nokia's Symbian system.
Recognizing its problems, Microsoft announced a completely new software system for phones earlier this year, called Windows Phone 7, which is scheduled to hit the market in a new range of handsets for this year's holiday shopping season.
If those phones don't make an impact, Rosoff said, Microsoft may begin looking at acquisitions in the mobile sector.
Shares of Microsoft were down 2.3 per cent at $25.67 in afternoon trading.