Microsoft CEO Steve Ballmer put his credibility, and possibly his career at the software maker, on the line Tuesday with a bold reorganization of the company's struggling hardware unit.

Gone in the shakeup are Entertainment and Devices Division president Robbie Bach, a 22-year Redmond veteran who is "retiring" at age 48, and design and development senior VP J Allard.

With no replacement named for Bach, Ballmer now assumes more direct oversight of E&DD—which houses key consumer products like the Xbox, Zune, and Windows Mobile.

Microsoft is quickly losing ground to rivals like Apple and Google in the consumer segment, and Ballmer's revamp of the unit may be a last ditch effort to reverse the trend.

The stakes couldn't be higher. With mobile devices set to become the dominant computing platform in the coming years, a failure by Microsoft to keep up with the competition could make the company an also ran.

And it might also mark the end of Ballmer's decade-long tenure atop the company. He's got his work cut out.

Microsoft now holds just a 6.8% share of the mobile market, down from 10.2% a year ago, according to Gartner. Worse for Redmond is that strategic rival Google is making big strides in the sector with its Android-based devices, even as Windows Mobile slumps.

The ED&D unit as a whole isn't faring much better. In the first nine months of Microsoft's 2010 fiscal year, hardware and hardware-related sales were down 5% year-over-year, to $6.5 billion. Xbox and PC game revenue fell 5% during that period, while Windows Mobile and Zune revenue was off 4%.

For Ballmer, those numbers add up to desperation—and the CEO acknowledged that the decision to let Bach walk wasn't an easy one.

"Robbie's an amazing business person and a close personal friend, which makes his departure a point of sadness for me," said Ballmer, in a statement. Bach's reports—Interactive Entertainment Business senior VP Don Mattrick and Mobile Communications senior VP Andy Lees will now report directly to Ballmer.

Presumably, he'll accept no excuses from either. Ballmer, in turn, needs to deliver.