Microsoft Corp. named Satya Nadella chief executive officer Tuesday, tapping an insider steeped in business technology to speed up a turnaround at a software maker that helped usher in the personal-computing age, only to be left behind as the world embraced the Internet and mobile devices.
Nadella, 46, is replacing Steve Ballmer effective immediately after a five-month search, Microsoft said in a statement. Bill Gates, the company’s first CEO, will step aside as chairman, devote more time to product development as a director and continue running his philanthropic foundation. John Thompson, the director who led the CEO search, becomes chairman.
The new CEO, who was born in India and joined Microsoft in 1992, takes over at a critical juncture. Consumers and businesses are shunning personal computers in favor of handheld devices made by rivals, sapping demand for Microsoft’s flagship products.
Besides playing catch-up with Apple Inc. and Google Inc., Nadella will be asked to manage strategy changes, begun by Ballmer last year. That includes the $7.2 billion integration of Nokia Oyj’s handset unit and turning Microsoft into a provider of services and hardware.
“He’s really the complete package - he has incredible intellect but he also combines that with a deep curiosity and willingness to learn,” said Doug Burgum, who sold business software developer Great Plains to Microsoft in 2001 and over-saw Nadella while at the Redmond, Wash.-based company.
Nadella had emerged as the top internal candidate by late November, people told Bloomberg News at the time. While Nadella has experience in cloud computing and enterprise businesses, he’ll need to enhance Microsoft’s presence in consumer markets, where rivals have seized the lead. The first question on the minds of critics is whether the Microsoft veteran of 22 years can deliver the same fresh thinking as an outsider, said Daniel Ives, an analyst at FBR Capital Markets & Co.
“He has all the qualifications to take over, but the question for investors is, ‘Will he be able to change things up?’” Ives said.
Much will depend on the role of Microsoft’s board, where former CEOs Gates and Ballmer will remain directors. Nadella also is joining the board as its 10th member. Thompson, the former Symantec Corp. CEO and International Business Machines Corp. executive, also introduces a new perspective.
“During this time of transformation, there is no better person to lead Microsoft than Satya Nadella,” Gates said in the statement.
The transition at Microsoft follows the worst decline on record for PCs in 2013, when shipments dropped 10 percent and are projected to languish through 2017. Microsoft’s revenue growth has averaged 9.4 percent in the past 10 years, compared with 24 percent during the prior period. In the past decade, Microsoft’s stock has gained 88 percent including dividends, compared with a 91 percent rise in the Standard & Poor’s 500 index. Microsoft shares fell 13 cents to close Tuesday at $36.35 in New York.
The new CEO will oversee a company of 130,000 employees when the Nokia acquisition closes in the next few months.Microsoft is seeking to gain market share as consumers turn to mobile devices and the Internet to check email and access data, putting the brakes on sales of PCs, the main driver of Microsoft’s Windows and Office software. The acquisition of Nokia is aimed at boosting Microsoft’s presence in the smartphone market, where it has a 3.1 percent share, according to ComScore Inc.
In 2012, Microsoft’s Windows operating system had 19 percent of the consumer computing market, according to Goldman Sachs Group Inc., down from 93 percent in 2000 when PCs were prevalent. In tablets and smartphones, Microsoft has less than 5 percent share of each market, according to researcher IDC.
Nadella, who was at Sun Microsystems Inc. before joining Microsoft, has worked on business software and services through much of his career. Born in Hyderabad, India, Nadella has a bachelor’s degree in electrical engineering from Mangalore University, a master’s degree in computer science from the University of Wisconsin-Milwaukee and an MBA from the University of Chicago.
Nadella, a cricket fan, was “very focused and had very good academics,” said M.A. Faiz Khan, who attended Hyderabad Public School with Nadella. Television broadcast vans were gathered outside the campus, which Nadella visited in recent years to open a robotics lab.
“The one thing that I would say that defines me is that I love to learn,” Nadella said in an online video. “I get excited about new things, I buy more books than I read or finish, I sign up for more online courses than I can actually finish, but the thing about being able to watch people do great things, learn new concepts, is something that truly excites me.”
Nadella keeps an eye on the moves of nimbler startups and has pushed Microsoft executives to learn from what people outside Redmond are doing, a person with knowledge of his management approach has said. At a technology conference in Paris in December, he spent time with local startups such as video-on-demand company Video Futur Entertainment Group SA.
“He is clearly the best choice to lead the company,” said Mason Morfit, the president of activist shareholder ValueAct Holdings LP who is set to join Microsoft’s board next month, in a statement. “I look forward to working with Satya, Chairman John Thompson and the rest of the Board of Directors to create value for all shareholders.”
Microsoft’s board considered other candidates for the role, including Microsoft Executive Vice President Tony Bates and Stephen Elop, the former Nokia CEO who is rejoining Microsoft as part of the merger. Ericsson AB CEO Hans Vestberg and Ford Motor Co.’s Alan Mulally were also under consideration. Steve Mollenkopf was taken out of contention when he was named CEO of Qualcomm Inc., after Bloomberg News reported Dec. 13 that he was a candidate.
Business, Pages 25 on 02/05/2014