Microsoft stays in-house, taps Nadella as new CEO

Bill Gates steps down from board chairman, will advise new chief exec on 'shaping technology and product direction'

Microsoft today ended its five-month CEO search where it began as it named insider Satya Nadella its third-ever chief executive.

Satya Nadella
Satya Nadella, 46, was named Microsoft's third CEO, replacing Steve Ballmer. (Photo: Microsoft)

"During this time of transformation, there is no better person to lead Microsoft than Satya Nadella," said Bill Gates, Microsoft's co-founder and former chairman, in a statement before the market bell Tuesday.

But the new chief executive was not Microsoft's only announcement today.

Gates will step down as chairman of the board -- a position he has had since the company's founding -- and take the new title of "Founder and Technology Advisor," Microsoft said, confirming numerous leaks that Gates would spend part of his week at the company advising Nadella on "shaping technology and product direction."

Board member John Thompson, a former CEO of Symantec and the one who led the CEO-search committee, will become chairman.

Nadella, 46, and a 22-year veteran of the company, was promoted from his position as executive vice president of Microsoft's Cloud and Enterprise group, the division responsible for some of the firm's fastest-growing services and most-profitable products, including the Azure cloud computing platform and SQL Server.

Before taking control of Cloud and Enterprises -- one of the new groups created when former CEO Steve Ballmer shuffled the company in a massive reorganization -- Nadella led the Server and Tools Business division, which in 2012 was Microsoft's second-largest unit by revenue. Prior to that, Nadella served stints in the company's online and Office groups.

Microsoft took a little more than five months to name its new CEO, a process kicked off last August when Ballmer abruptly announced he would retire within the next year.

Although outside candidates were early favorites -- including Ford Motor CEO Alan Mulally, who took himself out the race in December -- the board's focus increasingly shifted toward someone already at the Redmond, Wash., company. In November, for example, Gates said the next CEO needed "a lot of comfort in leading a highly technical organization and have an ability to work with our top technical talent," words that were interpreted to point to not just a technologist, but one very familiar with the firm.

Nadella had been rumored to be one of those top internal candidates for months, with his name often accompanied by that of Tony Bates, once the CEO of Skype and now the head of business development. Also reportedly in the running was Stephen Elop, the former CEO of Nokia. Elop will return to Microsoft -- where he ran once ran the Office franchise -- after it wraps up the acquisition of the Finnish company's handset business this quarter.

"This will be an enormous job for Nadella. He has experience, but I wonder if he has the amount of experience to take on a behemoth like Microsoft," said Patrick Moorhead, principal analyst with Moor Insights & Strategy. "He has had a lot of success in areas where Microsoft has done a real good job like Server and Tools, but no experience in areas of major pain, like consumer."

Analysts and pundits have closely followed the twists and turns of the CEO selection process because Microsoft is at a crossroads, trying to catch up in mobile even as traditional PCs -- the source of much of its revenue -- have fallen out of favor with consumers and its bet on Windows 8 has so far failed. In 2012, Ballmer announced a strategic change-up, one that aspired to make the company a seller of devices and services rather than one that relied on its decades-long expertise in software.

From its most recent earnings statements, Microsoft has made little progress in that turn, as its highest-margin groups are those that sell software, and subsidize the money-losing or less profitable device-based groups.

Microsoft presents the first interview with the company's new CEO, Satya Nadella.

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