Martin Waters, who has been in the job less than two years, is giving up his executive responsibilities. He will be replaced by Gary Greenfield, formerly chief executive of Intersolv, the US software company which Micro Focus bought for pounds 300m in June.
The switch was announced as Micro Focus confirmed disastrous third-quarter results which it flagged in a profit warning last month. In the three months to September, operating profits slumped to just $99,000 compared with $10.6m in the same period last year. The company also took a $49.7m charge related to the merger with Intersolv which pulled it into the red.
Mr Waters will receive compensation for loss of office, even though he is staying on the board as a non-executive director. However, Micro Focus refused to discuss the size of the payout. Last year, Mr Waters received a salary of pounds 489,000, including a performance-related bonus of pounds 201,000.
Mr Greenfield said the decision to remove Mr Waters was taken by the whole of Micro Focus's board. "This reflects the results of the previous quarter and concerns about the company's future," he said.
The shake-up follows a disastrous few months for Micro Focus culminating in a profit warning last month. Mr Greenfield said Micro Focus had not moved fast enough to integrate Intersolv into its operations. "We haven't done our job," Mr Greenfield said. "We've been slow in getting off the ground and we want to accelerate that process."
Mr Waters is the second chief executive to leave Micro Focus in two years. Last year Marcelo Gumucio resigned with a pounds 545,000 payoff after turning the company around.
Micro Focus's results were also hit by a slump in demand for products used to fix the millennium computer bug. In the US, companies have largely finished dealing with the problem and are now testing their systems to see whether they will work when the date changes.
However, Micro Focus only launched its millennium testing solutions in November, leading to a sudden drop in demand as customers waited for the new products to arrive. Millennium products currently account for about 20 per cent of Micro Focus's turnover.
George O'Connor, information technology analyst at Granville, the investment bank, said: "Micro Focus have been caught napping. The US market moved quickly but they should really be a lot closer to their customers."
Micro Focus shares fell 8.5p to 117.5p. They peaked at 718p earlier this year.
Analysts now expect the company to report a pre-tax profit of pounds 15.8m for the year to April 1999. For the following year, they have pencilled in pounds 30.7m.
Mr O'Connor said investors were likely to be cautious. "It will be difficult to get investors buying back into the stock until the company can demonstrate longevity beyond the millennium," he said.