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As CEO hunt winds down Satya Nadella -- Microsoft's current cloud chief -- is leading the pack

The hunt for Microsoft Corp.'s (MSFT) third CEO is nearing a close, after 160 days.  And according to Kara Swisher, the former All Things D blogger now with Re/Code, the leading candidate is a fresh face that many readers may be unaware of.
I. A Tough Job Ahead
According to Ms. Swisher:

[A]at this moment, those who have watched the process think that insider Satya Nadella, who is currently leading its enterprise effort, is the likeliest internal candidate to prevail.

That’s due to a number of reasons, including his familiarity with the company, where he has spent much of his career, as well as a strong technical background and a varied work history at Microsoft.

The two other insiders — strategy head Tony Bates and Nokia leader and former Microsoft exec Stephen Elop — seem further behind. But while sources said they have not been updated recently as to their status in the search, neither has been told he is out either as yet.

The new CEO -- whoever it may be -- will have a tough task ahead in restoring Microsoft's image.  While Microsoft remains a giant of the electronics industry, it stumbled with early mistakes in its launch of the Xbox One.  While it eventually tried to win customers back and undo unpopular decisions, the struggles echoed the troubled Windows 8 platform
PC sales have seen record drops after some customers gave the radical overhaul to the start-menu UI the thumbs down.  OEMs have returned to installing Windows 7 on new machines, an embarrassment for Microsoft that recalls the Vista debacle.

Steve Ballmer, CES
Steve Ballmer gives the audience a little slice of his reality at CES 2011.
© Jason Mick/DailyTech 2011

Those struggles, in part, forced CEO Steve Ballmer to announce his early retirement in an attempt to placate irate shareholders.  Mr. Ballmer exits Microsoft having held the CEO post for 14 years.  His predecessor and company co-founder, William Henry "Bill" Gates III, had held the post for 24 years.
The CEO hunt -- led by Mr. Gates -- was rumored initially to be focusing on Ford Motor Comp. (F) CEO Alan Roger Mulally.  But after multiple denials, it appears that an exasperated Mr. Mulally was being forthright -- he is uninterested in leaving Ford to take the reins at his current company's troubled business partner.
Likewise, other outside candidates -- including Qualcomm Inc.'s (QCOM) Steve Mollenkopf and Ericsson AB's Hans Vestberg -- seemed uneager to take on the challenge of reinventing Microsoft.  One rumored outside candidate who hasn't yet been ruled out is VMWare, Inc. (VMW) CEO Pat Gelsinger.  But while he may be a good fit personality-wise, his company is only about an eighth the value of Microsoft in market-cap.
Of the internal candidates, Mr. Nadella has been with the company the longest.  He joined Microsoft in 1992, having previously worked at Sun Microsystems.  While largely a quiet, behind-the-scenes leader, Mr. Nadella is seen as one of the more forward-looking leaders at the company.  Having started in the R&D unit of the business division, he helped to lead Microsoft's push into the emerging cloud computing market, earning a promotion to President of Servers & Tools in the process.

Satya Nadella
Satya Nadella, Microsoft's cloud chief

Born in Hyperabad, India in 1967, Mr. Nadella holds degrees from University of Wisconsin–Milwaukee (Master's deg. in Comp. Sci), The University of Chicago (MBA), and India's Manipal University (Bachelor's deg. in Electronics/Communications).  If Mr. Nadella receives the nod, he'll join the small, elite group of Indian-born CEOs who head major U.S. companies.

Of the internal competition, Anthony J. "Tony" Bates has been with Microsoft the shortest time.  He joined the company when it acquired Skype for $8.5B USD in May 2011.  He had served as CEO at Skype and is currently in charge of business, strategy, and evangelism at Microsoft.
Tony Bates
Tony Bates, Microsoft business/strategy/evangelism head

At age 50, Stephen Elop is the oldest of the three leading internal candidates.  He currently leads Microsoft's devices division.  He first joined Microsoft back in early 2008, working as the head of the business division.

Stephen Elop
Stephen Elop, Microsoft's Devices Chief

He's worked at a number of firms, notably holding the CEO spot at Macromedia (before its sales to Adobe Systems Inc. (ADBE)) and at Nokia Oyj. (HEX:NOK1V).  Some would argue that he delivered Nokia's devices unit to Microsoft and may earn extra consideration for that achievement.

III. Weary From the Hunt

The long hunt has taken its toll on Microsoft employees.

Ms. Swisher quotes one "high-ranking exec" as saying:

We aren’t doing anything but waiting.  No one knows what the new CEO will want, so no one knows what to do.

Another states:

[We're in] stasis, all depending on who gets the nod.

Ms. Swisher claims relief may soon arrive, though.  She says the CEO selection may come "within the next week", adding that the committee's has "a goal to announce [the pick] in early February."

Microsoft Redmond HQ
Microsoft employees shuffle along at the company's headquarters in Redmond, Wash.
[Image Source: AP]

Microsoft reported its results last week.  Despite "continued softness in the consumer PC market", it beat analyst expectations on strong business sector performance and the launch of the Xbox One, which sold 3.9 million units during the holiday season.  Microsoft pocketed $6.56B USD in net income for the quarter, higher than the analyst expectation of $5.72B USD, according to a survey by Thomson Reuters I/B/E/S.

Thus despite the Windows woes, it's important to remember that Microsoft is nearly twice profitable as Google Inc. (GOOG), a more vogue brand.  In other words, Microsoft's problems with perception are huge, but it still is very profitable and has solid revenue streams.

Source: Re/Code

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I'd love to be struggling like MS
By troysavary on 1/31/2014 4:57:33 AM , Rating: 3
The blogosphere loves to tell us how much trouble MS is in, and especially how awful the Xbox One is. Yet is the real world, MS continues to beat analysts predictions, profits are stellar, and the much mocked Xbox One is selling great. The only markets they are competing in that they are not a dominant player are search and mobile. Search may always be a money loser for them, but I think they will keep it around for the synergy with the rest of the ecosystem.

Predicting the downfall of either MS or Apple appears to be the fast track to being a laughingstock. I admit that I have done the latter, but Apple's strong numbers have continued to surprise me.

RE: I'd love to be struggling like MS
By piroroadkill on 1/31/2014 6:28:58 AM , Rating: 3
I hoped I would never see the word "blogosphere" again.

I am now sad.

By troysavary on 1/31/2014 7:08:21 AM , Rating: 2
That, and "phablet"?

RE: I'd love to be struggling like MS
By frozenassets on 1/31/2014 9:11:27 AM , Rating: 2
It's certainly a stretch to say MS is "Dominating" the console market right now. Last weeks global numbers from much maligned VGchartz has the PS4 almost doubling the sales of the XB1. Impressive enough but consider the PS4 hasn't even launched in it's home turf of Japan yet.

MS needs to do something quick regarding the XB1 or it's going to be left in the dust.

By troysavary on 1/31/2014 12:07:34 PM , Rating: 2
You don't have to be number one on the newest device to be "a" dominant player. They weren't the number one seller last generation either, but one would have to be spinning heavily to not include MS as one of the dominant players in the console industry. Pretty short sighted to take a small snapshot since the release of the PS4 and XB1 and extrapolate any market position from that. Most people wrote off the PS3 early in its' history yet it came back to be pretty much equal to the 360 overall.

By McGaiden on 2/1/2014 6:29:50 PM , Rating: 1
"The only markets they are competing in that they are not a dominant player are search and mobile"

Yeah and those two markets are HUGE.
Especially the latter. I'm relatively optimistic about Windows Phone, but they will not reach the dominance they had with their desktop OS. Android is the new Windows and at this point WP will be fightning for scraps.

And even their desktop OS is threatened. Chromebooks are selling like hotcakes in the latop space and we're increasingly starting to see all-in-one PCs with ChromeOS.

As for their Xbox division, it is a very small revenue stream. It has a lot of visibility for consumers but if you look at their revenue reports, it's marginal at best.

What's most indicative, however, is their very corporate culture. They try to bribe everyone. They try to bribe mobile vendors to use WP. They try to bribe youtubers who are affiliated with Machinima to do PR work for Xbone(without telling their viewers that they are paid by M$ to do so, so it's practically illegal). Everything that is a problem for them, they try to bribe people to do what they want.

I'm not predicting doom for M$ but you have to keep in mind that a lot of these revenue growths are part of legacy businesses and decisions made years ago. M$ will probably be the new Intel. Still a very strong player but ultimately really not innovating that much.

And when I compare Intel, I'm not comparing Intel to AMD, but Intel to Qualcomm and other mobile SoC players. Because like Intel, Windows is dominant in a shrinking sector(desktops) and incredibly weak in mobile. Unlike Intel, however, M$ were actually not THAT slow with Windows Phone. They just mismanaged it, like they mismanaged Windows 8.

I'm not celebrating. I don't like huge monopolies on operating systems. That was not healthy in the desktop space and it won't be healthy in the mobile space with Android as it reaches 90+ % market share.

Rule number one...
By MrBlastman on 1/31/2014 9:33:42 AM , Rating: 1
Never invest in a company run by an Indian. Ever. I don't know why, but for some reason, the majority of the time the stock ends up being a bad investment.

RE: Rule number one...
By McGaiden on 2/1/14, Rating: 0
RE: Rule number one...
By MrBlastman on 2/1/2014 10:55:08 PM , Rating: 1
I have years of investing experience as well as other respected individuals I know as well.

RE: Rule number one...
By Greyf0x on 2/2/2014 5:31:47 PM , Rating: 2
I have years of investing experience as well as other respected individuals I know as well.

So where is the actual data to back up your claim? Anyone can say they have "years of investing experience" but show us some data and results to back up your statement if it has any validity at all.

RE: Rule number one...
By MrBlastman on 2/3/2014 11:03:29 AM , Rating: 2
I play a game of odds and risk. I'm not going to bother presenting data here as I'm too lazy to dig it all up for you.

The goal is to minimize risk and maximize odds of success. These risks and odds must be quantifiable. In my personal experience, the risk of an Indian-run company underperforming or struggling to grow is about 90%. I'm not going to fight those odds. They're too high. There are plenty of other businesses to look at with more potential with a factor as strong as this holding it down.

It has nothing to do with color or creed in my opinion. I think it is more cultural than anything. I'm not Indian so I couldn't tell you what it is. It is a peculiar quirk that I an many others have noticed. There's just something there that leads to "weirdness" which is enough for me to find some other place to try profit.

You're welcome to waste your time and try and figure it out. Nobody I know has--and they have decades or more of experience. In the time you spend researching it, you could have made more money with other companies than you'll ever make trying to fight the tape.

That poor guy in the photo...
By stm1185 on 1/31/2014 2:04:39 AM , Rating: 2
You just know he got kicked out of the Titanfall closed beta because he got shufflin.

By troysavary on 1/31/2014 12:24:08 PM , Rating: 2
After seeing Titanfall footage, getting kicked out wouldn't make me terribly sad.

"What would I do? I'd shut it down and give the money back to the shareholders." -- Michael Dell, after being asked what to do with Apple Computer in 1997

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