As Microsoft’s Q3 awaits, it’s all Satya, all the time

CEO Satya Nadella, on the job since February, is suddenly everywhere, taking on the role of brainy technology visionary once held by Bill Gates as he seeks to steer Microsoft in a different direction.

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Microsoft CEO Satya Nadella James Martin/CNET

After Microsoft reports third-quarter earnings on Thursday, Wall Street followers tuning into the analyst conference call will get a chance to talk with the CEO of the world's largest software maker for only the second time in the company's four-decade history.

They're sure to have many questions, given the earnings report comes one day before Microsoft closes its $7.2 billion deal to buy smartphone maker Nokia and tackles the challenge of absorbing Nokia's 32,000 employees among Microsoft's more than 100,000 workers. But it's not a one-time show for Satya Nadella, who became chief executive officer in early Februray. Nadella says he intends to be a regular fixture on future earnings calls.

And that's just for starters. After spending his first few weeks close to Microsoft's home in Redmond, Wash., the 22-year company veteran has racked up the miles. Since late March, Microsoft's peripatetic leader has been out and about in front of the press, customers, and partners -- sometimes all three constituencies at once -- as he's pounded home the company's big messages for 2014 -- and beyond: to turn the software maker into a devices and services company.

Of course, CEOs are supposed to set the corporate agenda. But the vision thing has been missing over the last year as Microsoft searched for a new chief to replace Steve Ballmer, who announced last summer he would resign after 14 years on the job.

During the interregnum, work on Ballmer's "One Microsoft" plan to get the company moving faster continued apace. But until the new boss was in place, nothing big and bold was announced. Since Nadella has been settling into the job, Microsoft has made a few important announcements, including porting its Office productivity programs over to Apple's iOS software for the iPad and debuting a newer, faster version of its SQL Server database.

While it's still early to draw conclusions on how Nadella is faring, atmospherics do count. Nomura's veteran Microsoft analyst, Richard Sherlund, said in a recent note to investors that it was "encouraging" to see the CEO of Microsoft engaging in public product-strategy discussions. Sherlund also praised Nadella for recognizing that users are going cross-platform among different devices while "breaking away from the Windows and PC-centric focus of the past."

Microsoft employees have also welcomed the stepped-up tempo.

"It's huge," said one insider. "You can sense it across the company."

Microsoft shares, meanwhile, are up around $3 since Nadella was named CEO.

Microsoft in a Post-PC world

Change is long overdue. After years watching Apple and Google move ahead in key markets like tablets and search, Microsoft's rank-and-file privately voiced frustration with Ballmer and his team. Perhaps the best proponent of the overdue recognition of a post-PC, multi-platform world is Nadella himself, a native of Hyderabad, India, who has advanced engineering and computer science degrees and an MBA. In a letter to employees after he was picked as CEO, he also took the time to point out that he played cricket competitively, considers poetry one of his hobbies, buys more books than he can read, and signs up for more online courses than he can find time to complete.

"The cloud is enabling a world where you can walk up to any supported device, sign in, collaborate, communicate and share your creations with the world," Nadella wrote in a recent blog post. "Doesn't matter what you make, where you make it or what device you use."

Nadella's "mobile-first cloud-first" theme is now part of his regular spiel. He pushed that message in a San Francisco appearance in March to announce the availability of Office on iOS. He flew back to the city a week later to keynote Microsoft's annual Build developers conference, where he offered more details about Microsoft's overarching technology vision. He was at it again a couple of weeks later -- where else? -- in San Francisco to sell information technology managers on why they need Microsoft's technology tools to deal with the complexity of the 21st century.

In his most recent appearance -- the venue was the Beaux-Arts Old Federal Reserve Bank of San Francisco Building -- Nadella reprised the role of brainy visionary in much the same way that Microsoft co-founder Bill Gates used to explain to corporate customers why they ought to fall in line with his technology road map.

"The era of ambient intelligence has begun," Nadella said. "We are delivering a platform that allows companies of any size to create a data culture and ensure insights reach every individual in every organization."

In plain English, he was talking about Microsoft's ability to deliver technology IT users can deploy to get a better handle on the often disparate and massive flows of corporate information.

As Microsoft heads into what promises to be a pivotal transition year, Nadella will likely keep using his bully pulpit. Organizations have huge investments in Microsoft and IT departments have had to defend their investments in the face of competitive alternatives, notes Gartner analyst Michael Silver.

Nadella's higher public profile would help make CIOs feel better about the company as well as their investments in Microsoft technology, if not strengthen the perception that Microsoft is making progress in its areas of weakness, Silver said. "It's hard to say that all the moves we've seen recently are direct results of his tenure and plans," he said, "but it nonetheless is having a material effect on market perceptions."

Wall Street: Wait-and-see

Wall Street likes what it's seen so far. Despite sharp selloffs in the last couple of months, Microsoft's stock remains near its 52-week high of $41.66.

For now at least, Nadella will likely receive a "get out of jail free card" around future guidance, according to FBR and Co. technology analyst, Daniel Ives, who expects Nadella will need more time to implement his new strategies. Ives maintains a "market perform" rating on Microsoft along with a $40 price target.

The earnings results may offer a mixed picture, with strength in Microsoft's cloud offerings balanced against weakness in its Windows franchise, a sign of declines in the personal computer market. The quarter is hard to handicap; both Gartner and IDC reported slightly better-than-expected PC shipments during the March quarter. But any pickup in PCs isn't likely to last. While Microsoft hopes Windows 8 and its follow-on updates to its monopoly-making operating system can provide a boost, more consumers are buying tablets instead of PCs. FBR expects PC shipments to finish the year down 3 percent.

None of this is shaping up to be an immediate headache for Microsoft, said Ives. "The Nadella era" is "off to a good start" given the company's new openness about strategy as it seeks to compete in a "multi-platform world" where the field of competition now extends to apps, services, and the cloud, he said.

For now, the changed atmospherics may be enough. The new CEO clearly envisions a different Microsoft than the one he inherited. Watching how Wall Street treated his predecessor, though, Nadella knows that's only going to last so long. Once the honeymoon period is over, he will need to prove he can deliver.

 

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