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Sinofsky's departure 'a clear blow' to Microsoft

November 13, 2012: 1:19 PM ET

Click the chart to track shares of Microsoft.

Microsoft stock could remain under pressure as investors consider the ramifications of Windows chief Steven Sinofsky's sudden departure from the company after more than 20 years of service.

Shares of Microsoft (MSFT) dropped more than 5% early Tuesday to $26.75, the lowest level since January. By the afternoon, the stock pared some of the losses, but was still down about 3%.

Sinofsky's exit came as a surprise, coming just two weeks after Microsoft's launch of Windows 8, which has been radically redesigned and considered to be a key to Microsoft's future success.

"We think this is a clear blow to the company," said Brad Reback, Stifel Nicolaus analyst, in a research note. He noted that in addition to overseeing many of the company's core products, including Office and, most recently, Windows, Sinofsky was also considered to be a potential successor to Microsoft CEO Steve Ballmer. Given Sinofsky's central role at the company, Reback expects Microsoft's shares could fall further in the near-term.

Related: Microsoft's $3 billion man

Over the long haul, however, the loss may not be all bad, Reback said.

"While we are disappointed to see the company lose someone with Mr. Sinofsky's skills, we had heard for some time he had a very polarizing personality and had issues effectively working across groups," said Reback. "In fact, over time we believe this change could drive increased collaboration across groups, more rapid development cycles, and help Microsoft more effectively compete against Apple (AAPL) and Google (GOOG)."

Plus, given that Sinofsky's departure comes so soon after the release of Windows 8, the company has plenty to do before it has to start worrying about releasing its next Windows product. And Sinofsky is being replaced by Julie Larson-Green, another Microsoft veteran. So operational disruption within the Windows unit should be kept to a minimum.

One big question the shake-up poses is who will eventually take the helm from Ballmer.

"There's a camp of investors that would like a broader change at the very top of Microsoft," said David Hilal, analyst at FBR Capital Markets. "Without having Sinofsky as a potential successor to Ballmer, some investors will interpret that to mean that Ballmer will be around longer than they would like, and they won't be pleased with that."

And without Sinofsky, there's no other obvious successor.

"Microsoft has lost a lot of its most senior management right below Ballmer--it's been a bit of a revolving door there for the last three years," said Hilal. "So it's hard to say who's going to come next."

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