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Microsoft E&D President Bach Out; Product Guru Allard’s Departure Official

Robbie Bach, who has led Microsoft’s entertainment and devices group since it was started five years ago, is stepping down, as is chief technology officer J Allard, as part of a major restructuring of the group, which encompasses the Xbox, Windows Mobile, and the Zune. Bach isn’t being replaced and instead SVP Don Mattrick, who leads Microsoft’s interactive entertainment business, and SVP Andy Lees, who heads up mobile, will report directly to CEO Steve Ballmer.

Microsoft (NSDQ: MSFT) says Bach is retiring and Allard will continue to work as an “advisor” at the company. But it’s hard not to see the departures, especially in light of the decision not to replace Bach, as a sign that Ballmer was frustrated by the performance of the group and wanted to take more control over its operations. Ballmer similarly took direct leadership over the company’s then-faltering online services group after another Microsoft president, Kevin Johnson, left two years ago.

Bach and Allard led the development of the Xbox, which has widely been considered to be a success, but many of the entertainment and devices group’s other products, including the Zune and Windows Mobile, have been lapped by competitors, particularly Apple (NSDQ: AAPL). The division’s financial results have also been mediocre, as it has had to spend heavily on product development. The entertainment and devices group posted operating income for the first time ever only in 2008 — although it amounted to a relatively small, by Microsoft standards, $497 million, and operating income fell to $169 million last year.

The timing of the announcement of Bach’s departure is surprising, considering that the entertainment and devices division is on the verge of two major product launches — a new version of its mobile operating system, Windows Phone 7, and ‘Project Natal,’ a system that will let users control the Xbox 360 with just their hands. In a a statement, however, Ballmer cites those forthcoming products as evidence that the group is “set up well for success.” Bach will leave Microsoft this fall

There had been rumors for nearly a month that Allard — who most recently was leading the development of a new tablet computer — was leaving because he was frustrated that the project had been cut. In an interview with TechFlash, however, he denies any connection. TechFlash also has a lengthy interview with Bach, in which he reflects on his time at the company.