We reported yesterday that Microsoft Corporation (NASDAQ:MSFT) has shortlisted five external and three internal candidates to potentially succeed Steve Ballmer. Nomura equity research analyst Rick Sherlund said in a research note to investors that he expects the software giant to name Ford Motor Company (NYSE:F) CEO Alan Mulally as its new CEO by December. Mr. Mulally has made it to the five external candidates Microsoft Corporation (NASDAQ:MSFT) has shortlisted. Sherlund said Alan Mulally is the top pick based on his merits and track record. The Seattle-based company needs a turnaround expert. And Alan Mulally is credited with reviving Ford Motor Company (NYSE:F) when it was on the verge of bankruptcy.
Microsoft may complement Mulally with software visionary
Mulally has avoided talking about working for Microsoft Corporation (NASDAQ:MSFT). But he hasn't clearly denied it, either. In contrast, many other candidates approached by the software company have flatly stated that they are not interested in taking the reigns at Microsoft Corporation (NASDAQ:MSFT). Ford Motor Company (NYSE:F) has stated that their number 2 man is a strong successor to Mulally. Moreover, Alan Mulally and Steve Ballmer are very close. Mulally has reportedly advised Ballmer on restructuring Microsoft Corporation (NASDAQ:MSFT). Picking a chief executive is a time-consuming process and the software company will take some time to reach a consensus. So, Rick Sherlund thinks a December announcement is more realistic. Nomura believes internal candidates aren't realistic contenders.
However, Mr. Mulally is an aeronautical engineer. Before joining Ford Motor Company (NYSE:F), he headed Boeing Commercial Airplanes. He doesn't have a strong background in the software space. So, Microsoft Corporation (NASDAQ:MSFT) board may pair him with someone who does. Sources told Nomura that Bill Gates has approached software visionary and strategic thinker Paul Maritz. Mr. Maritz ran Microsoft Corporation (NASDAQ:MSFT)'s Servers and Tools business for 15 years. Now he oversees EMC Corporation (NYSE:EMC)'s cloud operations.
Microsoft should exit Bing and Xbox
The new CEO will have a big challenge as the software giant's Bing and Xbox businesses are losing plenty of money. The next chief should prioritize Microsoft Corporation (NASDAQ:MSFT)'s focus to business services and get rid of Bing and Xbox. Nomura estimates that these two businesses lose $3-$4 billion every year in aggregate. That results in 30-40 cents a share in annual losses. And the biggest problem is that they don't really help the company drive traction in mobile devices or enterprise products. Bing and Xbox don't fit into Microsoft Corporation (NASDAQ:MSFT)'s "devices and services company" model.
Nomura says that its $2.70 EPS estimate for 2015 can rise to $3.80 a share. That's possible if Microsoft Corporation (NASDAQ:MSFT) exits loss-making Bing and Xbox (that will save 30-40 cents a share), cuts operating costs by 10% that will generate 47 cents in EPS benefit, and goes for a 10% share buyback for $30 billion that should add 30 cents to EPS. Nomura has a Buy rating on the stock with a $45 price target.
Microsoft Corporation (NASDAQ:MSFT) shares were down 0.88% to $37.85 at 9:50 AM EDT.