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Microsoft is losing the leader of its $15bn server and tools business unit, the operation charged with executing the company's cloud computing strategy.

Server and tools chief Bob Muglia will leave Microsoft this summer after 23 years of service, company chief executive Steve Ballmer said on Monday.

Microsoft's CEO had decided it's time for new leadership at the top of server and tools. In an announcement here, Ballmer said: "Bob Muglia and I have been talking about the overall business and what is needed to accelerate our growth. In this context, I have decided that now is the time to put new leadership in place for STB. This is simply recognition that all businesses go through cycles and need new and different talent to manage through those cycles."

Muglia said he was moving on to "new opportunities" outside Microsoft.

The Microsoft exec was promoted to president of server and tools in January 2009, following one of the company's many reshuffles. He ran fast-growing products like Exchange Server, SQL Server, and Visual Studio. More recently, cloud became his remit as Microsoft's fledgling Azure platform was shuffled into the server and tools business unit.

Muglia had been one of five Microsoft presidents running major business units. He joined the head of Windows and Windows Live, Steven Sinofsky; business division chief Stephen Elop; entertainment and devices boss Robbie Bach; and online services head Qi Lu.

Of these, Bach and Elop are also gone. Elop became CEO of Nokia, and Bach announced his resignation last May after 19 years on the job, as his unit lost market share in mobile phones.

Also gone within the last seven months: chief software architect Ray Ozzie, and senior vice president of design and development J Allard, the brain behind the Xbox. Ozzie had been with Microsoft for just five years. Allard was a 22-year veteran.

Was Muglia another notch on the hatchet? Ballmer's words suggest that Muglia either disagreed with Ballmer or wouldn't or couldn't give Ballmer what he wanted in terms of growth for Azure.

Tellingly, Ballmer is generous in his homage to the server and tools business. But Cloud computing is more than just licenses for software on a box.

According to Ballmer's letter: "The best time to think about change is when you are in a position of strength, and that's where we are today with STB."

Last year, Muglia upset Silverlight developers, rattled Silverlight partners, and put a downer on Microsoft's PR karma when he told All-about-Microsoft's Mary-Foley that Microsoft had shifted priorities on its Silverlight media player, previously a rising star.

Before that interview, Muglia was nothing less than a solid performer for Microsoft. He might not have been a visionary speaker, but he knew the technology.

Muglia took the Azure reins from Ozzie. Microsoft radically reorganized server and tools last year to sell both Azure and server-and-tools staples such as Exchange – without one cannibalizing the other.

Certainly, the tone of Ballmer's announcement is glowing compared to the announcements that accompanied the exits of Bach and Elop exits, suggesting there's less of a problem.

But there's every indication that Ballmer wants an executive from the new school of cloud thinking and technology instead of an older hand from the earth-bound world of Exchange Servers and Visual Studio development tools.

The next question is: Who takes over from Muglia? Microsoft has had huge problems attracting and retaining outsiders at the company. It's been difficult to get outsiders interested in coming to the company, and when outsiders do arrive, it's been difficult to fit them into Microsoft's existing culture. Facebook and Google are seen as the exciting cloud companies.

That will likely mean that Microsoft promotes from within. And you can bet that the server and tools president role will be broken up, with someone leading cloud and someone else heading server and tools.

Until someone is prepared to handle both, we could see Steve Ballmer running server and tools, echoing the re-org that followed Elop's exit. Ballmer now oversees business applications, and Office was handed to Kurt DelBene. ®

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