REDMOND, Wash. - Microsoft (MSFT) has named Satya Nadella, an executive in charge of the company's small, but growing business of delivering software and services over the Internet its new CEO. Company founder Bill Gates is also 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 founder Bill Gates and Ballmer. Board
member John Thompson will serve as Microsoft's new chairman.
Microsoft shares edged up in premarket
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.
Analysts hope that he 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., Salesforce.com Inc. and IBM Corp.
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
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
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 handset and services business. Microsoft
agreed in September to buy that and various phone patent rights for 5.4 billion
euros ($7.2 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.