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Microsoft Seen Testing Insider Nadella’s Will to Revamp

By Dina Bass
January 31, 2014 12:23 AM EST 119 Comments
Satya Nadella, then senior vice president of research and development for the online services division for Microsoft Corp., speaks during a Microsoft Search Summit event in San Francisco on Dec. 15, 2010. Nadella is currently executive vice president of cloud and enterprise.
Photographer: David Paul Morris/Bloomberg
Satya Nadella, then senior vice president of research and development for the online services division for Microsoft Corp., speaks during a Microsoft Search Summit event in San Francisco on Dec. 15, 2010. Nadella is currently executive vice president of cloud and enterprise.

When asked last month what kinds of gadget gifts he would be getting for Christmas, Microsoft Corp.’s Satya Nadella, said to be the board’s pick for chief executive officer, had an easy answer: Microsoft devices.

Nadella, 46, in an interview at a technology conference in Paris, said he had already gotten a new Xbox One game console for his children that he uses to watch movies through Netflix Inc. The India-born executive said he also has a phone made by Nokia Oyj -- a business that Microsoft is buying -- with a 41 megapixel camera.

His task as CEO will be winning over the legions of consumers who are far less enthused about buying Microsoft products. Taking over for Steve Ballmer, Nadella would inherit a company that has been left behind in smartphones, tablets and on the Web and one that’s racing to transform from its software roots to be a leader in hardware and Internet services.

Nadella can draw on 22 years of experience at the Redmond, Washington-based company in roles including head of the enterprise and cloud unit. He will also need to win over skeptics concerned that an insider can’t move fast enough to make Microsoft a contender again in markets led by Apple Inc., Google Inc. and others, said Daniel Ives, an analyst at FBR Capital Markets & Co.

The Whiteboard

“Can a Redmond insider like Satya take out the whiteboard and look at it with a fresh view and be willing to make the changes needed, whether it’s in mobile or the tablet?” said Ives, who rates Microsoft the equivalent of a hold. “He has all the qualifications to take over, but the question for investors is will he be able to change things up.”

A new CEO is set to be accompanied by other shifts, said people with knowledge of the matter, who asked not to be identified because the process is private. Directors are also discussing replacing chairman Bill Gates with Microsoft lead independent director John Thompson, said the people.

As CEO, Nadella would become one of the highest-ranking India-born executives in the U.S., along with PepsiCo Inc. CEO Indra Nooyi.

Frank Shaw, a spokesman for Microsoft, declined to comment

Nadella grew up in Hyderabad, India, and has a bachelor’s degree in electrical engineering from Mangalore University and graduate degrees in computer science and business. After moving to the U.S., he worked at Sun Microsystems Inc. before joining Microsoft in 1992.

At Microsoft, Nadella has listed Gates and Ballmer as big influences on his executive style.

Ballmer, Nadella

Yet Nadella’s style is different from Ballmer. Whereas Ballmer is outgoing and emotional -- he has recently been teary-eyed at at least one Microsoft event -- Nadella is more quiet, people who know the men have said. Ballmer also has a business background while Nadella is an engineer.

Within Microsoft, Nadella is liked and respected as someone who speaks his mind and will do what’s best for the company while ignoring political divisions, said a person familiar with the executives. Some managers in the company question whether Nadella can spur the degree of change Microsoft needs, the person said.

“He will blaze his own trail,” said Pat Becker Jr., a fund manager at Becker Capital Management in Portland, Oregon, which oversees about $2.8 billion and owns Microsoft shares “Many of us want a clean break.”

Server Business

At Microsoft, Nadella has worked in businesses including the Bing search engine’s engineering and technical strategy and leading the company’s small business applications push.

He became president of the server unit in 2011, where he accelerated the move to Internet-based computing and worked to better connect cloud software with Microsoft’s programs for internal corporate networks. He also promoted interoperability with rival programs and helped strike a deal to offer Oracle Corp.’s competing database software on Microsoft’s Windows Azure cloud service.

At the server business, Nadella boosted revenue to $20.3 billion in the fiscal year through June, up from $16.6 billion when he took over in 2011. That unit was renamed cloud and enterprise in July, as part of an overhaul by Ballmer to focus the company on devices and services.

With the enterprise and cloud market changing rapidly fueled by nimble startups and rivals including Amazon.com Inc., Nadella has pushed executives to move faster and to add features first to cloud software rather than Microsoft’s traditional products, James Staten, an analyst at Forrester Research, said in an interview in December.

Looking Outside

Nadella also follows the moves of startups and encourages Microsoft executives to learn from what people outside of Redmond are doing, a person with knowledge of his management approach has said. At the technology conference in Paris last month, he spent time with local startups like video-on-demand company Video Futur Entertainment Group SA.

It’s important to speak with startups because “the tech cycle is such that the small guys make it big and the big guys die,” Nadella said in an interview at the time.

“He has a lot of wisdom even though he’s pretty young for an executive at that level,” said Doug Burgum, who sold business-software developer Great Plains to Microsoft and oversaw Nadella while at Microsoft. “Some of that wisdom is that he can always learn from others.”

Nadella was paid $7.67 million for the fiscal year ended June 30, according to compensation research firm Equilar Inc., which examines corporate filings. Nadella also had 454,062 shares of unvested stock valued at $15.7 million as of that date, said Equilar. Based on Microsoft’s share price at the close in New York yesterday, the total value of his equity is $20.9 million, according to the researcher.

To contact the reporter on this story: Dina Bass in Seattle at dbass2@bloomberg.net

To contact the editor responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net

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