Here’s Who Microsoft Is Considering as a Ballmer Replacement

Steve Ballmer

Whoever he or she may be, Microsoft’s (NASDAQ:MSFT) next chief executive will have a weighty task: To guide the software maker’s efforts to fend off competition from rivals like Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG), companies better positioned to profit from the technological turn to mobile computing.

With each passing product launch, those competitors are pulling farther and farther ahead, putting urgency into the technology company’s search for a new leader. Ideally, Microsoft’s board of directors would like the successor to current CEO Steve Ballmer in place by the end of the year, and it is the midst of narrowing down its potential list of candidates.

Since Ballmer announced at the end of August that he would retire within the next 12 months, the list of candidates for the chief executive position has been narrowed from the 40 names with which the company started.

Through sources familiar with the search, Reuters learned that the number of external contenders has been narrowed to five — including current Ford (NYSE:F) CEO Alan Mulally and Nokia (NYSE:NOK) Chief Executive Stephen Elop — and the list of internal contenders has been narrowed to three, including former Skype CEO Tony Bates, who now leads Microsoft’s business development, and Satya Nadella, head of the company’s cloud and enterprise unit.

Other names on the list could not be ascertained by the news service, but the sources did explain to Reuters that Microsoft is interviewing candidates from a wide range of business sectors.

Microsoft’s next CEO — be it Mulally, Elop, Bates, or someone else — will take the reins of a company in the midst of a massive transition. Microsoft’s acquisition of Nokia’s cellphone business locked Ballmer’s successor into manufacturing devices, which is likely why many industry experts are favoring former company executive and current Nokia CEO Elop.

That purchase was part of the new vision. In July, Ballmer announced a “far-reaching realignment of the company that will enable [Microsoft] to innovate with greater speed, efficiency and capability in a fast changing world.” In a strategy document titled “Transforming Our Company,” he noted, “as the times change, so must our company.” Basically, the transformation Ballmer had in mind is a greater focus on tablets and smartphones.

That is the legacy the next Microsoft chief executive will inherit. But investors are hoping that Ballmer’s successor will not follow his in his steps too closely, because the worry remains that both Chairman Bill Gates and Ballmer will retain their board seats and therefore their influence over the company. Investors are not pleased with Microsoft’s hardware forays: Not only have the company’s efforts been underwhelming, the hardware business has much tougher margins that squeeze profits.

Critics have been calling for Ballmer to step down for some time now, and for a visionary new leader who will focus on innovation rather than salesmanship to replace him. The chief executive has taken a great deal of flack for the poor performance of Microsoft’s stock since he assumed the leadership position in 2000 — the stock has lost approximately 35 percent of its value in the past 13 years, a symptom of Microsoft’s inability to keep up with changing technological trends.

In investors’ eyes, the steps Microsoft has made into the mobile world have been disappointing. Since its launch, reviews of the Surface tablet, the company’s first dip into the hardware industry, have not been overwhelmingly positive, nor have the sales figures, and that problem is evident in the company’s financials.

In mid-July, the software maker reported that fourth-quarter net income came in at $5 billion, or 59 cents per share, which included a charge of $900 million, or 7 cents per share, “related to Surface RT inventory adjustments,” meaning that Microsoft misestimated the number of tablets it should have manufactured or the price the company should have charged for the device.

As for Windows Phone, Microsoft’s mobile operating system, it powered 3.7 percent of all smartphones shipped in the second quarter of 2013. While the platform posted the largest year-over-year increase among the top five smartphone platforms and reinforced its position as the No. 3 smartphone operating system, its share of the market is very small compared to that of Apple’s (NASDAQ:AAPL) iOS and Google’s (NASDAQ:GOOG) Android.

Still, it must be remembered that Microsoft is an highly profitable company, with third-quarter earnings rising 17 percent and beating analyst expectations. But concern that company will continue to lose ground to Apple and Google in mobile computing remains.

So far, from comments made by Ford, its seems unlikely that Mulally will be Ballmer’s replacement. Ford does not have a contract with Mulally; last November, when it was announced that the CEO planned to stay on through 2014, he said that his contract was “a very firm handshake with the chairman.” And as Ford Chairman Bill Ford specified last month in an interview with Bloomberg Television, Mulally will stay at Ford “as long as he and I would like it to happen.”

Similarly, Ford spokesman Jay Cooney told Reuters that “there is no change from what we announced last November. Alan remains fully focused on continuing to make progress on our One Ford plan. We do not engage in speculation.” Mulally, however, is still a tempting recruit: He has been credited with inspiring a cultural change at the automaker that enabled Ford to reverse a string of losses and avert a federal bailout in 2009.

As for Nokia’s Elop, he will return to Microsoft regardless of whether he is chosen to replace Ballmer. When the $7.2 billion purchase is closed, he will be heading back to his former employer.

Follow Meghan on Twitter @MFoley_WSCS

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