Why It's Clear That Microsoft Picked the Right CEO

Satya Nadella's years of experience make him the perfect fit to lead Microsoft during its strategic transformation.

Feb 5, 2014 at 5:00PM

In the months since Steve Ballmer revealed he would be stepping down as Chief Executive Officer of tech giant Microsoft (NASDAQ:MSFT), a great deal of speculation swirled based on who could be his likely successor. For a while, it seemed Microsoft would choose an outsider, but in the end, the company chose Satya Nadella, who previously held the position of Executive Vice President of its cloud and enterprise group.

For several years, Microsoft struggled to break away from technologies of the past, such as the personal computer. Microsoft is finally seeing strong success in cloud-based services. That's how Microsoft has been able to post strong earnings in recent quarters, and by picking Nadella, that momentum is only set to continue.

Why Satya Nadella is a perfect fit
Satya Nadella becomes the third chief executive officer of Microsoft, and served 22 years with the company in his prior role. Nadella is credited with spear-heading Microsoft's major strategy shift, which includes building Microsoft's massive cloud infrastructure.

Stepping into the position as chief executive means he takes the helm of a company in the midst of a major strategic shift. It's becoming clear that Microsoft is being rejuvenated because of its highly successful cloud product offerings, particularly at the enterprise level where Microsoft dominates.

In all, Microsoft's second-quarter revenue hit a record, at $24.52 billion, which represented a 14% increase. A significant driver of its results was particularly strong performance from its commercial segment. That's because, not only does that segment account for the majority of Microsoft's overall revenue, but it's vastly more profitable than the other segment, devices and consumer.

Within the commercial business, its commercial licensing division generated a massive 92% gross margin in the most recent quarter. Microsoft's cloud-based offerings are performing tremendously. Its commercial cloud services, which include Office 365, Azure, and Dynamics CRM Online, more than doubled quarterly revenue versus the same quarter last year.

Microsoft's future will be shaped by its success in breaking away from the personal computer, which is an industry that seems to be in a significant structural decline. Technology industry research firm IDC estimated that worldwide PC shipments fell 5.6% in the fourth quarter and 10% for 2013.

Large-cap tech in a pinch
The collapse of the personal computer is exactly why Microsoft, as well as a host of other major technology companies, are rushing to break away from the PC. International Business Machines (NYSE:IBM), which used to be a primarily hardware-focused company, is in the process of its own transformation. IBM is trying very hard to become a technology consulting company, particularly in cloud-based services.

This will take time, as IBM is a huge company, but notable progress is being made. IBM's cloud revenue hit $4.4 billion last year, representing a 69% growth rate. Unfortunately, it's still being weighed down by its hardware segment, which saw revenue fall by 26% in the fourth quarter. This caused total revenue to fall 5% in 2013.

Other technology companies are further along than IBM in capitalizing on the cloud, but large technology companies don't turn on a dime. For example, Oracle (NYSE:ORCL) booked 2% revenue growth in its fiscal 2014 second quarter, and a clear disparity is emerging in its results. Revenue from hardware systems products fell 3%, but its software revenue increased 5%. New software license and cloud software subscription revenue increased 1% in constant currency, even while facing a tough comparison to last year's 18% growth in the same quarter last year.

Microsoft's future is in the cloud
Microsoft clearly sees the writing on the wall in the technology world, which is that growth going forward is in software and not the PC. Microsoft is quickly working to break away from the personal computer, and its efforts are succeeding. That's why picking Satya Nadella, and his breadth of experience in the company's cloud and enterprise group, is a perfect fit. Take it from Bill Gates, who stated, "During this time of transformation, there is no better person to lead Microsoft than Satya Nadella."

Get in on the cloud computing revolution
There are few things that Bill Gates fears. Cloud computing is one of them. It's a radical shift in technology that has early investors getting filthy rich, and we want you to join them. That's why we are highlighting three companies that could make investors like you rich. You've likely only heard of one of them, so be sure to click here to watch this shocking video presentation!

Bob Ciura has no position in any stocks mentioned. The Motley Fool owns shares of International Business Machines, Microsoft, and Oracle.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers