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Microsoft to Name Nadella as New CEO

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Reportedly, the world’s largest software maker Microsoft Corp. (MSFT - Free Report) plans to appoint an internal expert, Satya Nadella, as the new chief executive officer (CEO).

As part of the move, the board may also decide to replace co-founder Bill Gates as chairman of the board with John Thompson, Microsoft’s lead independent director.

The 46-year old Nadella joined Microsoft in 1992. He climbed the ranks over the years and was appointed as the head of the server and tools unit in 2011. In July 2013, Nadella was appointed the executive vice president, Cloud and Enterprise, — the company's fast-expanding cloud computing business as a part of Microsoft’s initiative to restructure its business.

According to sources, some investors preferred an outsider for the CEO position as aggressive moves could have helped Microsoft stay abreast of the rapidly-changing tech landscape. Additionally, they contend that Nadella lacks experience as a chief executive, unlike internal rival Tony Bates and external candidate Alan Mulally. Therefore, it remains to be seen whether Nadella can actually bring Microsoft back on the growth path.

Despite being one of the biggest brands, Microsoft’s Windows business is being battered by the slump in the PC market. This may be attributed to the increasing customer shift toward tablets, smartphones and hybrids.

Therefore, Microsoft’s current CEO, Steve Ballmer, who will retire soon, reorganized the business units in an attempt to better compete with other technology companies like Apple Inc. (AAPL - Free Report) and Google Inc. in the fast-growing mobile and cloud computing markets.

Ballmer responded to the changing dynamics with the launch of innovative products such as the Surface tablets, which, although making some progress, continue to struggle because of very strong competition. The company is also focused on app creation, which is essential for success in the mobile segment. But shareholders looking for radical changes could want the devices and services sides split up and Nadella is not expected to go for such changes.

On the other hand, Nadella is a steady hand who has working relationships with the engineers, so there is likely to be more confidence in him from the inside.

In any event, restoring the company’s position as well as shareholders' confidence will be an uphill task for Ballmer’s successor. The new CEO has his work cut out: he has to deliver on both the services side (high-growth, high-margin prospects) and the devices side (very competitive, low-margin prospects, but strategically important). And all eyes will be on him.

Microsoft’s shares currently carry a Zacks Rank #3 (Hold). Another stock in the sector that is performing well is Facebook ((FB - Free Report) ), with a Zacks Rank #2 (Buy).

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