Microsoft Corporation (NASDAQ:MSFT) has been reported to be negotiating with enterprise chief Satya Nadella to be its next CEO and that the company could finalize its pick within the next few days. While many may be disappointed in the company’s pick, saying that Microsoft is playing it safe rather than being bold, others say investors shouldn’t write him off just yet.
More of the same at Microsoft?
On one level, Nadella does certainly seem to be a safe bet. After all, many analysts and investors have been hoping an outsider would come along and shake things up at Microsoft Corporation (NASDAQ:MSFT). However, according to Shira Ovide and Spencer E. Ante of The Wall Street Journal, Nadella has signaled to the board of directors that he will strive for continuity at the software giant, suggesting that he will just carry on with what CEO Steve Ballmer has been doing—a strategy many see as being outdated and now ineffective.
When looking at Nadella’s history, there isn’t much to suggest that he will break from the status quo. After all, he’s been with Microsoft Corporation (NASDAQ:MSFT) for more than two decades, and he hasn’t really set any trends while there. As such, many view him as the safe pick for Microsoft.
Nadella could be an agent of change at Microsoft
Ovide and Ante note that rising to the CEO post has emboldened some executives in the past. In fact, Nadella could be capable of coming up with solutions that surprise us. The report cites people who have worked with Nadella as “repairing technical glitches at Microsoft’s Web-search service, disarming Silicon Valley technologists suspicious of the company and fostering collaboration in a turf-conscious workplace.”
But whether he ends up being a safe pick of an agent of change, it makes sense that Microsoft Corporation (NASDAQ:MSFT) would choose him. After all, he has been heading up the company’s enterprise business, which is where Microsoft gets two-thirds of its profits. The selection of Nadella could suggest that the company wants to focus more of its efforts in this area, which has been its bread and butter for years.
Some pushing for enterprise focus at Microsoft
Such a strategy could be in line with what activist firm ValueAct Capital might have in mind. The firm recently won the right to a board seat and will officially take that board seat very soon. The WSJ doesn’t name ValueAct specifically, but it does say that “an activist firm that soon will have a Microsoft board seat” has been wanting Microsoft Corporation (NASDAQ:MSFT) to get rid of its consumer-oriented businesses and focus on enterprise.
This would mean dumping the Xbox and Bing search divisions. However, Bill Gates and Ballmer, as well as a number of directors, have reportedly been resistant to that idea, and Nadella appears to be in line with their thinking. He said in 2012 that the line between consumer and enterprise devices is blurring, which is the same view currently held by Gates and Ballmer. It’s also contrary to former Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) CEO Stephen Elop, who was said to be one of the top candidates but has said in the past that he would sell the Xbox division. Indeed, right now it’s worth questioning the wisdom of dumping the devices division, particularly the Xbox, which showed signs of growth in the most recently reported quarter.
Nadella faces challenges
Elop comes to Microsoft Corporation (NASDAQ:MSFT) as part of Nokia’s devices division when that deal closes. If he does become the company’s third CEO in its history, Nadella will have to deal with not only 32,000 new employees, but also a set of devices which has yet to become profitable and has been dragging Nokia down. He’s also battling Apple Inc. (NASDAQ:AAPL) and Google Inc (NASDAQ:GOOG) on the consumer front—a battle that has been proven to be uphill so far.
The WSJ points to some recent decisions of Nadella’s, however, which could provide just the shakeup Microsoft Corporation (NASDAQ:MSFT)’s struggling devices division needs. For example, he allowed outside developers to use programming languages not developed by Microsoft on its cloud service. Those languages were popular with younger developers, and at the time, the decision went against the grain. However, it’s turning out to have been a good thing.
Also analyst Ted Schadler of Forrester Research says Nadella helped boost sales ad secure capital so that Microsoft Corporation (NASDAQ:MSFT) could construct computer server farms for its cloud business. He calls Nadella “a change agent,” in spite of his insider status. Indeed, the impact of what he has done in Microsoft’s cloud business is measurable, as the company more than doubled its cloud technology and services revenue during the six months ending in December.
