Nadella to head Microsoft; Gates leaves chair role
Feb 4, 2014 10:46 AM (ET)
By RYAN NAKASHIMA
Associated Press
http://apnews.myway.com//article/20140204/DABOGMK02.html
LOS ANGELES (AP) - Microsoft has named Satya Nadella, an executive in
charge of the company's small, but growing business of delivering
software and services over the Internet, as its new CEO. Company founder
Bill Gates is leaving the chairman role for a new role as technology
adviser.
The software company announced Tuesday that Nadella will replace Steve
Ballmer, who said in August that he would leave the company within 12
months. Nadella will become only the third leader in the software
giant's 38-year history, after Gates and Ballmer. Board member John
Thompson will serve as Microsoft's new chairman.
Nadella, who is 46 and has worked at Microsoft for 22 years, has been an
executive in some of the company's fastest-growing and most-profitable
businesses, including its Office and server and tools business.
For the past seven months, he was the executive vice president who led
Microsoft's cloud computing offerings. That's a new area for Microsoft,
which has traditionally focused on software installed on personal
computers rather than on remote servers connected to the Internet.
Nadella's group has been growing strongly, although it remains a small
part of Microsoft's current business.
"Satya is a proven leader with hard-core engineering skills, business
vision and the ability to bring people together," Gates said in a
statement. "His vision for how technology will be used and experienced
around the world is exactly what Microsoft needs as the company enters
its next chapter of expanded product innovation and growth."
The company said that Gates, in his new role as founder and technology
adviser, "will devote more time to the company, supporting Nadella in
shaping technology and product direction."
Gates will also remain a member of Microsoft's board.
Analysts hope that Nadella can maintain the company's momentum in the
rapidly expanding field of cloud computing while minimizing the negative
impact from Microsoft's unprofitable forays into consumer hardware.
Major rivals in cloud computing include Google Inc., Amazon.com Inc.
(AMZN), Salesforce.com Inc. and IBM Corp.
FBR Capital Markets analyst Daniel Ives said he views Nadella as a "safe
pick."
Ives said investors are worried that rivals "from social, enterprise,
mobile, and the tablet segments continue to easily speed by the
company." In a note to investors, he said the company's main need now is
"innovation and a set of fresh new strategies to drive the next leg of
growth."
Microsoft shares rose 15 cents to $36.63 in morning trading Tuesday.
Nadella's appointment comes at a time of turmoil for Microsoft.
Founded in April 1975 by Gates and Paul Allen, the company has always
made software that powered computers made by others - first with its
MS-DOS system, then with Windows and its Office productivity suite
starting in the late 1980s. Microsoft's coffers swelled as more
individuals and businesses bought personal computers.
But Microsoft has been late adapting to developments in the technology
industry. It allowed Google to dominate in online search and
advertising, and it watched as iPhones, iPads and Android devices grew
to siphon sales from the company's strengths in personal computers. Its
attempt to manufacture its own devices has been littered with problems,
from its quickly aborted Kin line of phones to its still-unprofitable
line of Surface tablets.
Analysts see hope in some of the businesses Nadella had a key role in
creating.
Microsoft's cloud computing offering, Azure, and its push to have
consumers buy Office software as a $100-a-year Office 365 subscription
are seen as the biggest drivers of Microsoft's growth in the next couple
of years. Both businesses saw the number of customers more than double
in the last three months of the year, compared with a year earlier.
Those businesses, along with other back-end offerings aimed at corporate
customers, are the main reason why investment fund ValueAct Capital
invested $1.6 billion in Microsoft shares last year.
Last April, the fund urged investors to ignore the declining PC market -
which hurts Microsoft's Windows business - and to focus on the so-called
"plumbing" that Microsoft provides to help companies analyze massive
amounts of data and run applications essential to their businesses on
Microsoft's servers or their own.
"Satya was really one of the people who helped build up the commercial
muscle," said Kirk Materne, an analyst with Evercore Partners. "He has a
great understanding of what's going on in the cloud and the importance
of delivering more technology as a service."
Nadella is a technologist, fulfilling the requirement that Gates set out
at the company's November shareholder meeting, where the Microsoft
chairman said the company's new leader must have "a lot of comfort in
leading a highly technical organization."
Born in Hyderabad, India, in 1967, Nadella received a bachelor's degree
in electrical engineering from Mangalore University, a master's degree
in computer science from the University of Wisconsin, Milwaukee, and a
master's of business administration from the University of Chicago.
He joined Microsoft in 1992 after being a member of the technology staff
at Sun Microsystems.
One of his first tasks will be integrating Nokia's money-losing phone
and services business. Microsoft agreed in September to buy that and
various phone patent rights for 5.4 billion euros ($7.3 billion) in one
of Ballmer's last major acts as CEO. That deal is expected to be
completed by the end of March.
Partly because of Nadella's insider status and the fact that both Gates
and Ballmer will remain Microsoft's largest shareholders and for now,
company directors, analysts aren't expecting a quick pivot in the
strategy of making its own tablets and mobile devices.
Some hope, however, that he will make big changes that will help lift
Microsoft stock, which has been stuck in the doldrums for more than a
decade. Since Ballmer took office in Jan. 13, 2000, Microsoft shares are
down a split-adjusted 32 percent, compared with a 20 percent gain in the
S&P 500.
"We do not want to see a continuation of the existing direction for the
business, so it will be important that Mr. Nadella be free to make
changes," Nomura analyst Rick Sherlund wrote in a note Friday.
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