Microsoft names head of cloud computing as company's next CEO; Gates to become tech adviser

The Associated Press

This May 21, 2008 photo, Microsoft Senior Vice President of Portal and Advertising Platform Group Satya Nadella demonstrates some of the features of Live Search on a mobile device during the advance08 Advertising Leadership Forum at the company's campus in Redmond, Wash. Microsoft announced Tuesday, Feb. 4, 2014, that Nadella will replace Steve Ballmer as its new CEO. Nadella will become only the third leader in the software giant's 38-year history, after founder Bill Gates and Ballmer. Board member John Thompson will serve as Microsoft's new chairman. (AP Photo/Stephen Brashear)

Associated Press + More

By RYAN NAKASHIMA, AP Business Writer

LOS ANGELES (AP) — As longtime Microsoft insider Satya Nadella takes the company's helm, he is declaring a new focus on a "mobile-first, cloud-first world." So far, he only has the latter half of the formula figured out.

Microsoft and its new CEO are at a crossroads: They are trying to catch rivals such as Apple, Google and Amazon, which are building a thriving ecosystem for mobile devices. At the same time, the company wants to expand its burgeoning business as a provider of software and services over the Internet.

Nadella, the head of Microsoft's cloud computing business, was named Tuesday to be Steve Ballmer's immediate replacement. He is only the third chief executive in Microsoft's 38-year history.

The 22-year Microsoft veteran has enlisted the help of company founder and first CEO Bill Gates, who is leaving his role as chairman to serve a more hands-on role as an adviser at Nadella's request. Gates will spend a third of his time working on products and technology.

Nadella, 46, led the company's small but growing cloud computing unit, in which customers pay Microsoft to house data and run applications on distant servers connected to the Internet. Those services are a departure from Microsoft's traditional business of making software for installation directly onto personal computers.

In addition to growing that business, one of Nadella's first tasks as CEO will be to complete Microsoft Inc.'s $7.3 billion purchase of Nokia's phone business and patent rights — part of a plan to boost Windows Phone software in a market dominated by iPhones and Android devices.

"Going forward, it's a mobile-first, cloud-first world," Nadella said Tuesday in a video accompanying the announcement.

He said he would capitalize on Microsoft's experience making the industry's leading productivity software package, Office.

"We need to be able to pick the unique contribution that we want to make," he said. "That's where our heritage of having been the productivity company ... is what we want to get focused on."

Gates will remain on the company's board. The new Microsoft chairman will be board member John Thompson, who led the search for a new CEO after Ballmer said in August that he planned to step down.

Thompson said Nadella was the board's "first and unanimous choice." Other candidates the company considered included Ford CEO Alan Mulally and other insiders such as Chief Operating Officer Kevin Turner and former Skype head Tony Bates.

Nadella has "the right background to lead the company in this era," Gates said in a video message. "There's a challenge in mobile computing. There's an opportunity in the cloud."

Nadella has been an executive in some of the company's fastest-growing and most profitable businesses, including its Office and server and tools business. In three years as server and tools president, he helped grow that business into one with $20 billion in annual revenue — about a quarter of Microsoft's total revenue in the most recent fiscal year.

For the past seven months, he was the executive vice president who led Microsoft's cloud computing offerings. Nadella's new cloud enterprise group has also been growing strongly, more than doubling customers in the latest quarter, although it remains a small part of Microsoft's current business.

Analysts hope that Nadella can maintain the company's momentum in cloud computing and business software while minimizing the effects of unprofitable forays into consumer hardware. It's a transition IBM Corp. succeeded in making in the 1990s, but that companies such as Hewlett Packard Co. and Dell Inc. have struggled with.

Microsoft shares fell 13 cents Tuesday to close at $36.35.

Nadella's appointment comes at a time of turmoil for Microsoft.