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Can New CEO Satya Nadella Turn Microsoft Around?

Eric Dutram

After what seemed like a never-ending search, it appears as though Microsoft (MSFT) has finally found their next CEO. Satya Nadella will be replacing Steve Ballmer as the chief executive at the software giant, making a jump from the Cloud and Enterprise division to the top spot.

Who is Satya Nadella?

Nadella has been with Microsoft for over two decades, starting at the company in 1992 in the Windows developer-relations group. He rose through the company over the years, and was considered by many to be a top choice to replace Ballmer.

This is because Nadella led one of the most profitable divisions at MSFT, and a segment that has grown pretty big in the past few years. In fact, his division raked in over $20 billion in revenues and over $8 billion in operating income last fiscal year, and the firm’s Azure service has been able to effectively compete with Amazon (AMZN) and their Web Services, giving the company a new growth avenue.

However, given Nadella’s focus on business segments, there is some concern that he will not be able to react to changes in the firm’s consumer division. A few are also a little concerned that he doesn’t have chief-executive experience, and that being such a Microsoft veteran could prevent him from breaking out of the mold and pushing MSFT to the next level.

Can He Turn Microsoft Around?

Despite a belief that MSFT has been severely underperforming, Microsoft has actually outperformed the S&P 500 (SPY) over the past five years, while it barely trails the Tech Sector SPDR (XLK) for the same time period. And over the past decade, MSFT is actually far ahead of both benchmarks in terms of performance.

The real issue is MSFT vs. its big tech competition, and the outlook for the future. The company has certainly lagged many of its big tech peers, and concerns have been building that MSFT is falling far behind the likes of Apple (AAPL) and Google (GOOG) in terms of both consumer appeal and innovation.

After all, while AAPL and GOOG have hit their stride in the past few years, many of Microsoft’s core businesses have tumbled. PC sales have been sliding for years, while Windows 8 hasn’t been well-received (I hate it as well).

Microsoft has also had trouble breaking into new segments effectively—such as music players, and to an extent, tablets and phones as well, so expansion into new businesses will be key for future growth, especially if core business sales continue to fall. This focus on new businesses will be a core part of Nadella’s job, as well as rebuilding some consumer confidence in MSFT.

There is also the issue of the culture of Microsoft and the looming presence of Steve Ballmer and Bill Gates. While there are rumors that Bill Gates will step down from his role as Chairman of the Board, nothing is definitive yet.

Given that two of the new CEO’s predecessors could be on the board, it may be tough for Nadella to forge his own path at MSFT. I know that I wouldn’t want to take a job if two of my predecessors were watching over my every move, and especially so if both were both company legends as well.

Bottom Line

I think that Nadella could be a solid choice for the job, though the issue of Ballmer and Gates, remains a big problem in my opinion. The move to insert Nadella in the top spot does signal that MSFT will have a bigger focus on the cloud as well as ‘tools’ in the near future, though it may also suggest that MSFT is slowly going away from the consumer market.

I don’t think this is necessarily a bad thing (as this is becoming increasingly difficult), but it will definitely be tough to make people believe in MSFT again, particularly after other tech giants have come so far in the past few years. Analysts also seem to like the move, so we will have to see if MSFT can get back into ‘buy’ territory, as the company currently has a Zacks Rank #3 (Hold) though this represents a recent increase from a Sell Rank just a week ago.

But what do you think?

Will this move help Microsoft move in the right direction? Or should the company have gone with a different candidate, perhaps someone with more consumer or executive experience, or even an outsider like Ford’s (F) Alan Mulally?

Let us know what you think in the comments section below!

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