(Bloomberg) Microsoft Corp. has named Satya Nadella chief executive officer, tapping an insider steeped in business technology -- including a brief stint as head the unit that was home to its Dynamics line of accounting software -- to speed a turnaround at the software giant.

Nadella, 46, is replacing Steve Ballmer effective immediately after a five-month search, Microsoft said in a statement today. Bill Gates, the company’s first CEO, will step aside as chairman, devote more time to product development as a director and continue running his philanthropic foundation. John Thompson, the director who led the CEO search, becomes chairman.

The new CEO, who was born in India and joined Microsoft in 1992, takes over at a critical juncture. Consumers and businesses are shunning PCs in favor of handheld devices made by rivals, sapping demand for Microsoft’s flagship products. Besides playing catchup to the likes of Apple Inc. and Google Inc., Nadella will be tasked with completing strategy changes, begun by Ballmer last year. That includes integrating the $7.2 billion integration of Nokia Oyj’s handset unit and turning Microsoft into a provider of services and hardware.

“He’s really the complete package -- he has incredible intellect but he also combines that with a deep curiosity and willingness to learn,” said Doug Burgum, who sold business- software developer Great Plains to Microsoft and oversaw Nadella while at the Redmond, Washington-based company. Nadella briefly succeeded Burgum as head of Microsoft Business Solutions in 2006, before moving on to another Microsoft unit in early 2007.

 

Fresh Thinking

While Nadella brings experience in cloud and enterprise businesses, he’ll need to boost Microsoft’s presence in consumer markets, where rivals have seized the lead. The first question on the minds of critics is whether the Microsoft veteran of 22 years can deliver the same fresh thinking as an outsider, said Daniel Ives, an analyst at FBR Capital Markets & Co. “He has all the qualifications to take over, but the question for investors is will he be able to change things up,” said Ives, who rates Microsoft the equivalent of a hold.

Much will depend on the role of Microsoft’s board, where former CEOs Gates and Ballmer will remain directors. Thompson, the former Symantec Corp. CEO and International Business Machines Corp. executive, also brings a new perspective.

“During this time of transformation, there is no better person to lead Microsoft than Satya Nadella,” Gates said in the statement.

The transition at Microsoft follows the worst decline on record for PCs in 2013, when shipments dropped 10 percent and are projected to languish through 2017. Microsoft’s revenue growth has averaged 9.4 percent in the last 10 years, compared with 24 percent during the prior period. In the past decade, Microsoft’s stock has gained 88 percent including dividends, compared with a 91 percent rise in the Standard & Poor’s 500 Index.

The new CEO will oversee a sprawling empire of 130,000 employees once the Nokia acquisition closes in the next few months. Microsoft is seeking to remain relevant as consumers turn to mobile devices and the Web to check e-mail and access data, putting the brakes on sales of PCs, the main driver of Microsoft’s Windows and Office software. The acquisition of Nokia is aimed at speeding up the transition to device and services.

 

Cloud Business

In 2012, Microsoft’s Windows operating system had 19 percent of the consumer-computing market, according to Goldman Sachs Group Inc., down from 93 percent in 2000 when PCs were prevalent. In tablets and smartphones, Microsoft has less than 5 percent share of each market, according to researcher IDC.

Nadella, who was at Sun Microsystems Inc. before joining Microsoft, has worked on business software and services through much of his career. Born in Hyderabad, India, he has a Bachelor’s in electrical engineering from Mangalore University, a Master’s in computer science from the University of Wisconsin–Milwaukee and an MBA from the University of Chicago.

 

Microsoft Veteran

“The one thing that I would say that defines me is that I love to learn,” Nadella said in an online video. “I get excited about new things, I buy more books than I read or finish, I sign up for more online courses than I can actually finish, but the thing about being able to watch people do great things, learn new concepts, is something that truly excites me.”

Nadella accelerated the move to Internet-based computing and worked to better connect cloud software with Microsoft’s programs for internal corporate networks. He also promoted interoperability with rival programs and helped strike a deal to offer Oracle Corp.’s competing database software on Microsoft’s Windows Azure cloud service.

“Satya has the rare combination of technological depth, business savvy and strong people-leadership skills,” said Jeff Raikes, a former Microsoft executive and CEO of the Bill & Melinda Gates Foundation.

 

Tech Cycle

As president of Microsoft’s server business, Nadella boosted revenue to $20.3 billion in the fiscal year through June, up from $16.6 billion when he took over in 2011. That unit became cloud and enterprise when Ballmer revamped Microsoft’s structure in July.

Before being named to lead the server unit, Nadella held leadership roles in several different businesses within Microsoft, including Bing search engineering and technical strategy, and the company’s small-business applications push.

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

Nadella keeps an eye on the moves of nimbler startups and has pushed Microsoft executives to learn from what people outside of Redmond are doing, a person with knowledge of his management approach has said. At a technology conference in Paris in December, he spent time with local startups like video- on-demand company Video Futur Entertainment Group SA.

 

Top Pick

Microsoft’s board considered other candidates for the role, including Microsoft executive vice president Tony Bates and Stephen Elop, the former Nokia CEO who is rejoining Microsoft as part of the merger. Ericsson AB CEO Hans Vestberg and Ford Motor Co.’s Alan Mulally were also under consideration. Steve Mollenkopf was taken out of contention when he was named CEO of Qualcomm Inc.

Nadella was paid $7.67 million for the fiscal year ended June 30, according to compensation research firm Equilar Inc., which examines corporate filings. He also had 454,062 shares of unvested stock valued at $15.7 million as of that date, Equilar said.

Amazon.com Inc. tried to recruit Nadella to serve as an executive when the world’s biggest online retailer built its cloud products, a person with knowledge of the matter said. Kerri Catallozzi, a spokeswoman for Seattle-based Amazon, didn’t respond to a request for comment.

Gates, who along with Paul Allen founded the company in 1975, was the first CEO. He left that role in 2000, succeeded by Ballmer. Ballmer and Gates were hallmates in a Harvard University dorm before Gates convinced Ballmer to leave business school in 1980 to join Microsoft as its 30th employee.

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