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Originally published February 4, 2014 at 6:20 AM | Page modified February 5, 2014 at 7:50 PM

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New Microsoft CEO aims to speed innovation

Microsoft’s board has chosen longtime company executive Satya Nadella to guide into the future the once-dominant software giant. The company remains formidable in some areas but has in recent years faltered amid the rise of mobile computing and seen competitors increasingly threaten its rele

Seattle Times technology reporter

Five challenges facing Microsoft CEO Satya Nadella

Gaining traction for Microsoft’s mobile devices. The market shares for Windows Phone and Windows tablets are still tiny.

Gaining market share against cloud competitors such as Amazon Web Services and VMware. Microsoft has made great gains with Windows Azure and Office 365, but it’s still playing catch-up in some areas of the cloud.

Figuring out what to do with Windows. Windows 8, which featured a dual user interface that works with both touch devices, as well as mouse and keyboard, has had a tepid reception.

Integrating Nokia’s handset business. Microsoft will become one of the world’s largest device manufacturers — and employer of 32,000 former Nokia workers — when the deal closes.

Dealing with new board dynamics. Activist shareholder ValueAct Capital is about to take a seat on the board, and the chairmanship has passed from Bill Gates to John W. Thompson.

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Given all the many months and the many rumored candidates whose names appeared then disappeared, the naming Tuesday of longtime Microsoft executive Satya Nadella as the company’s new CEO was as much a sigh of relief as it was the beginning of the next chapter for the software giant.

But clearly, the choice of Nadella as CEO, as well as the decision of co-founder Bill Gates to step down from chairmanship of the board, marks a new era for Microsoft, which has had only three CEOs in its 39 years.

Nadella, 46, who has been at Microsoft for 22 years, on Tuesday took over a company that in the last fiscal year brought in $78 billion in revenue and which remains formidable among corporations, and dominant in PC operating systems and productivity software.

But Microsoft also faces daunting challenges as consumers and businesses increasingly turn to cloud-based services and mobile devices.

Facing those challenges is a new CEO who has no experience running a company as large or as complex as Microsoft — but whose appointment is, nonetheless, regarded with excitement and approval by many.

In his new role, Nadella will be aided by Gates, who will become a technical adviser, helping Nadella to shape technology and product direction. Gates will remain a board member.

Gates and Nadella, along with Nadella’s predecessor, Steve Ballmer, and new board Chairman John W. Thompson, appeared before hundreds of employees at a rally Tuesday morning on the Microsoft campus.

“Microsoft was founded on a belief in the magic of software,” Gates said, adding that the company has amazing strengths.

But he also acknowledged the company faces challenges — most notably in the mobile and cloud markets. (“Cloud” is the term used to refer to services and data that live on remote servers and can be accessed by users online. Netflix, for instance, is a cloud service.)

“We’ve got a slice of it but not as big a slice as we need,” Gates said.

In a news release, Gates said that “during this time of transformation, there is no better person to lead Microsoft than Satya Nadella. Satya is a proven leader with hard-core engineering skills, business vision and the ability to bring people together.

“His vision for how technology will be used and experienced around the world is exactly what Microsoft needs as the company enters its next chapter of expanded product innovation and growth,” Gates said.

For his part, Nadella told employees he felt “honored, humbled, excited” about leading the company.

And he repeatedly emphasized what seems to have become a mantra for him: ensuring that Microsoft thrives in a “mobile-first, cloud-first” world.

Throughout Tuesday, Nadella talked about focusing the company on what it can uniquely do and on picking up the pace.

“The opportunity ahead for Microsoft is vast, but to seize it, we must focus clearly, move faster and continue to transform,” he said in a news release. “A big part of my job is to accelerate our ability to bring innovative products to our customers more quickly.”

Microsoft did not make Nadella available for an interview.

At Tuesday’s rally, hundreds of excited employees crowded the atrium, hallways and stairways of several floors of a Microsoft building to cheer Nadella.

“He’s great,” Nidhi Gupta, a programming writer, said after the event. “He has vision and he’s excited about things.”

Puneet Sethi, a software engineer with Windows Phone, said he likes that Nadella “knows the company. He knows where to take the company.”

Bo Wu, an IT business architect, said he was happy the board chose Nadella, who he believes will continue the “devices and services” mission begun by Ballmer in which the company is working to turn itself into one that produces devices and offers software services.

“Someone from outside might not understand it as much as Satya,” Wu said.

Those in the local tech community also approved of the appointment.

“I was really thrilled to see Satya named,” said John Connors, a managing partner at Ignition Partners venture-capital firm and a former chief financial officer at Microsoft. “He’s a talented guy, a terrific choice to lead the next generation at Microsoft.”

Connors remembers introducing Nadella to the founder, and then the CEO, of enterprise-software company Splunk.

”Satya was the kind of person who could go to a great level of depth with a technical founder and then turn right around and have a great business conversation with the CEO,” Connors said.

“I think if you were to poll the Microsoft employees or the Microsoft diaspora working all over the industry, I think you’d find they’d say: ‘Yeah — he’s a great person to lead Microsoft,’ ” he said.

Nadella has “driven the business hard and put Microsoft on the map as a cloud player,” said Birger Steen, a former Microsoft vice president who is now CEO of virtualization and automation software company Parallels.

“And he’s taken a much more partner-friendly approach to it,” Steen said.

Indeed, one of Nadella’s areas of expertise is the cloud.

Most recently, he headed Microsoft's Cloud and Enterprise group, which provides servers, cloud platforms and other technology tools for corporations and is one of the company’s fastest-growing, most profitable divisions.

Last fiscal year, his division pulled in $20.3 billion in revenue and $8.2 billion in operating income.

Described as very smart, personable, charismatic and collaborative, he is well respected within Microsoft and well regarded by Wall Street.

Nadella inherits a company in the midst of great change.

Ballmer, before he announced in August his intention to retire, had started a companywide reorganization aimed at getting employees to collaborate more and to quicken the pace of product releases and updates. He is still on the Microsoft board.

Microsoft will also soon become one of the world’s largest device manufacturers when its $7 billion purchase of Nokia’s handset business is completed, expected sometime early this year.

When the deal closes, it will also add about 32,000 employees to Microsoft’s payroll.

Microsoft’s share price finally began to rise last year, after remaining stubbornly flat for much of the decade. The most recent big increase came after Ballmer announced he would be retiring.

In addition, the company has faced increasing pressure from shareholders — including activist shareholder ValueAct Capital, which recently gained the option of a Microsoft board seat — to increase the company’s shareholder value.

ValueAct President G. Mason Morfit issued a statement Tuesday saying he was enthusiastic about Nadella’s appointment.

“As an active contributor to the CEO search process, I have spent a lot of time with Satya and he is clearly the best choice to lead the company,” Morfit said. “

Ballmer, who became CEO in 2000, had faced criticism for years about Microsoft’s stagnant stock price.

Microsoft shares closed Tuesday at $36.35, down 13 cents.

Janet I. Tu: 206-464-2272 or On Twitter @janettu.

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