Satya Nadella as Microsoft CEO? That’s Just What MSFT Stock Needs

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Microsoft (MSFT) is poised to make the safe choice in naming a new Microsoft CEO, according to reports, and as boring and predictable as that may be, it very well could be the best thing for Microsoft and MSFT stock.

Microsoft-CEO-MSFT-stockReports out of Redmond, Wash., have the company naming Satya Nadella as Microsoft CEO as early as next week. That will be a disappointment to holders of MSFT stock who were clamoring for a superstar from outside the company to shake things up and lead a revolution.

After all, plenty of restive shareholders wanted the new Microsoft CEO to be someone like Alan Mulally, who is credited with working miracles first at Boeing (BA), and now at Ford (F).

But Mulally didn’t want to move. And in fact, it’s not clear that MSFT even wanted him in the first place.

Plus, the list of potential superstar CEOs is short, especially considering the needs of a place as vast and highly complex and steeped in technology as Microsoft.

Let’s face it: Even if Microsoft nabbed the most exciting candidate on the planet — and MSFT stock shot up on the news — transforming this company into something nimble that could win in the consumer space probably wasn’t going to happen anyway. That’s just not something that’s in the cards for any company with a market cap of more than $300 billion.

That’s why making Satya Nadella the new Microsoft CEO is the safest bet for MSFT stock over the long haul. It’s a long-overdue acknowledgment that MSFT is an enterprise company first and foremost … not a consumer company. MSFT is so far behind on what it takes to compete in consumer these days — be it tablets, social, mobile — that it’s never going to catch up.

Heck, as much money and energy as it has thrown at everything from search to tablets over the years, Microsoft has never come close to being relevant in those fields — much less profitable.

MSFT Stock: An Enterprise Play

Investors should take comfort in Satya Nadella as Microsoft CEO. He oversees one of Microsoft’s best-performing units by far: the server software and back-end technology business for corporate customers. He’s also in charge of cloud operations — a new and growing area in tech where MSFT still could have a chance. Microsoft’s sales of cloud services actually more than doubled in the most recent quarter.

Meanwhile, PC sales are a melting iceberg, and nothing is going to change that. MSFT stock is never going to get a boost from the tablets that are replacing PCs, because even if it had the best hardware and software, the market has already gone to Apple (AAPL) and anyone running Google’s (GOOG) Android operating system.

Most importantly, enterprise sales already account for two-thirds of Microsoft’s revenue. By appointing Satya Nadella as Microsoft CEO, the company is only formally acknowledging the facts on the ground. MSFT’s future lies with corporate customers, not consumers.

Bottom Line

The first step toward solving a problem is to admit that you have one. That’s why this choice as CEO would be the best thing for MSFT stock. No, Microsoft isn’t going to grab onto any of the hot-growth consumer markets this way — but it wasn’t going to, anyway.

If the new Microsoft CEO embraces what the company is good at — that is, enterprise — both Microsoft and the market can come to an understanding of just what MSFT represents.

Boring, incremental growth can be plenty remunerative. Throw in buckets of cash flow, some share buybacks and a generous (and rising) dividend, and MSFT stock would have a change at being a steady, long-term outperformer.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2014/01/microsoft-ceo-msft-stock-satya-nadella/.

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