Microsoft (Nasdaq: MSFT) Stock Could Get a Lift From New CEO Nadella

Microsoft Corp. (Nasdaq: MSFT) stock is poised for a boost in 2014 now that the company has officially named Satya Nadella as the new CEO.

Nadella will replace Steve Ballmer, whose long tenure at the helm of Microsoft was marked by miscues and missed opportunities that left Microsoft stock flat for more than a decade, though it did follow the markets higher in 2013 with a 40% gain. Part of that gain in MSFT stock came, however, following Ballmer's announcement that he would leave the CEO post.

In addition to the news on Nadella, Microsoft also said founder and former CEO Bill Gates is stepping down as Chairman of the Board, though he will remain a member of the board along with Ballmer.

Board member John Thompson, a former International Business Machines Corp. (NYSE: IBM) executive and former CEO of Symantec (Nasdaq: SYMC), will become Microsoft's new chairman. Thompson has asked a lot of tough questions since joining Microsoft's board in 2012.

nasdaq msft ceo
A 22-year veteran of Microsoft, the 46-year-old Nadella faces a full slate of challenges right out of the gate.

Despite its success, Microsoft continues to rely heavily on the profits of its two flagship products, Windows and Office. The company is still trying to catch up on the mobile revolution of smartphones and tablets that has eaten into sales of traditional PCs and the Microsoft software that runs on them.

Nadella will need to overcome the mistakes of the past while setting a bold new direction for Microsoft, but will need to do so with both Ballmer and Gates sitting on the board.

That worried some analysts.

"We do not want to see a continuation of the existing direction for the business, so it will be important that Mr. Nadella be free to make changes," Nomura analyst Rick Sherlund wrote in a note Friday.

Nevertheless, Nadella could be just the tonic Microsoft stock needs...

How Satya Nadella Can Move Microsoft (Nasdaq: MSFT) Stock

Most recently, Satya Nadella has served as president of Microsoft's server and tools division.

An Indian-born engineer with degrees in electronics and computer science, he graduated with an MBA from the University of Chicago Booth School of Business and began working at Microsoft in 1992. Over the last 22 years, he's held leadership roles in cloud services, Internet search, server software, and Windows business applications.

Under Nadella, Microsoft's cloud business has gotten much more traction - a prime reason he rose to the top of the list of CEO choices.

Nadella has successfully launched a number of projects within Microsoft, including BizTalk, Microsoft's Commerce Server, and Microsoft's Office Small Business products.

But his chief achievements have come as a leader of recent online projects. He was responsible for transforming a failing Windows Live Search product into the search engine Bing, which has been growing market share in the struggle against the mighty Google Inc. (Nasdaq: GOOG).

Nadella isn't perfect. He's never been a chief executive and has little experience with the company's consumer products such as the smartphone, personal computer, and gaming lines.

But in several ways Nadella has "the right stuff" to transition Microsoft away from the Ballmer regime... 

The recently launched strategy of evolving Microsoft from a software company to a devices and services firm will rely heavily on greater adoption of cloud computing - Nadella's core area of knowledge.

And while Nadella may lack a complete understanding of all of the firm's business lines, he does have a nose for profitability. 

Why Nadella Is the Right Fit for Microsoft Now

His most recent success came in the company's booming server business, which was restructured under Ballmer's new strategy in July 2013 to focus on cloud and enterprise software. In the last fiscal year Nadella boosted revenue to $20.3 billion from $16.6 billion in 2011, which was when he assumed control of the division.

Another Nadella strength is his relationship with the engineering corps of Microsoft.

"Microsoft is a contentious enough place that you wouldn't want to bring in someone who lacked credibility with the engineers," MIT Sloan School of Management professor Michael Cusumono told Bloomberg.

Microsoft desperately needs a cultural transition. Whoever was going to become the next Microsoft CEO was going to need to change the culture and focus on business development, all while serving as a technology visionary capable of leading the firm in a rapidly evolving sector.

Nadella, with his strong internal relationships, should be exceptionally qualified to execute such a change.

"I couldn't be more honored to have been chosen to lead the company," Nadella said in a statement. "The opportunity ahead for Microsoft is vast, but to seize it, we must focus clearly, move faster and continue to transform."

What do you think of the choice of #SatyaNadella as the new Microsoft CEO? Let us know on Twitter: @moneymorning.

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About the Author

Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.

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