"They are really reorganizing for the market reality that has been in place for the last three years," Cearley said. "It would have been nice if it was done earlier, but it's not too little too late yet. The real key is execution. All these changes make sense and I can see a path forward, but that path forward is a really rocky one."

Most of Microsoft's key executives will remain in positions of power at the Redmond, Wash., company although with new roles and more defined responsibilities. The company's new divisions include engineering, marketing and business development.

Ballmer said no layoffs are planned, although analysts believe the overhaul will open the door for cost-cutting opportunities as Microsoft pulls together its disparate parts.

Terry Myerson, who had been overseeing Windows Phone, will lead Microsoft's operating systems and engineering group, namely Windows. Qi Lu, who had been overseeing Bing, will head applications and services.

Microsoft named veteran executive Julie Larson-Green head of its devices and studios engineering group, which will be in charge of hardware development, games, music and entertainment. She had been promoted in November to lead all Windows software and hardware engineering after Steven Sinofsky, the president of its Windows and Windows Live operations, left the company shortly after the launch of Windows 8.

Tony Bates, who joined Microsoft in 2011 when the company bought video calling service Skype for $8.5 billion, will take on a key networking role as he works with the company's key business partners and preaches about the virtues of Microsoft's products and services.

Some of what Microsoft is doing mirrors changes that Apple and Google already have executed.

For instance, Apple put its iOS software for iPhones and iPads along with its operating system for its Mac computer under one executive, Craig Federighi, in a shake-up last year. And Google's Android software for mobile devices and Chrome software for laptops were aligned under the management of the same executive, Sundar Pichai, for the first time during the spring.

Now, Microsoft hopes to mimic the success of its rivals in a world that increasingly revolves around mobile devices and Internet services. Gartner estimates nearly 867 million devices running on Android software will be shipped worldwide this year, up from 505 million last year. Worldwide shipments of Windows-powered devices are expected to total nearly 340 million this year, down from 346 million last year, Gartner forecasts. But those Windows machines are primarily PCs, not smartphones or tablets. Apple will ship about 296 million iOS and Mac devices this year, up from 213 million last year, Gartner predicted.

Part of Microsoft's problem is a matter of perception. Even though it remains one of the world's most profitable companies, its stature has been steadily diminishing in tech and investment circles.

Ballmer's reorganization "should help Microsoft slow its decline, but the question remains whether it will be enough to help it climb into new markets," Forrester Research analyst Frank Gillett said.

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Ortutay reported from New York.

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Online:

Ballmer's email to Microsoft employees about the shake-up: http://www.microsoft.com/en-us/news/Press/2013/Jul13/07-11OneMicrosoft.aspx