Nadella to head Microsoft; Gates leaves chair role

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REDMOND, Wash. (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 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 trading.
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 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 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.
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