Microsoft's CEO may come out swinging

SEATTLE Tue Mar 25, 2014 1:59pm EDT

A variety of logos hover above the Microsoft booth on the opening day of the International Consumer Electronics Show (CES) in Las Vegas January 10, 2012. REUTERS/Rick Wilking

A variety of logos hover above the Microsoft booth on the opening day of the International Consumer Electronics Show (CES) in Las Vegas January 10, 2012.

Credit: Reuters/Rick Wilking

Related Topics

SEATTLE (Reuters) - Satya Nadella, the Indian-born self-described cricket fanatic who took over as Microsoft Corp's chief executive last month, makes his public debut on Thursday and is expected to go on the offensive right away with some bold strokes.

When Nadella hosts his first major press conference this week, he's likely to describe - if not officially launch - versions of Word, Excel and PowerPoint designed for Apple Inc's iPad, looking to cash in on a market worth up to $7 billion a year, according to Wall Street analysts.

The technology behind the software is not ground-breaking, but the strategy is: It puts Office at the heart of the company's push to become a leading services company across a variety of platforms - possibly at the expense of Windows and its own Surface tablet.

That perceived willingness to break with the Windows tradition, which remains co-founder Bill Gates' most enduring legacy, has helped spur Microsoft shares to $40-plus levels not seen since the dotcom boom of 2000.

Wall Street is now guardedly optimistic on a company that, while still garnering billions of dollars in annual profit, risks gradual obsolescence in a mobile-powered tech industry.

"The fact that Nadella is going to pull the trigger (on Office) shows he's not just an insider that's going to continue the status quo. Right now, it's a blank sheet of paper," said Daniel Ives, an analyst at FBR Capital Markets.

Depending what Microsoft charges for Office on the iPad, and how many of the scores of millions - and rising - iPad users adopt it, it could rake in anywhere between $840 million to $6.7 billion a year in revenue, estimates Raimo Lenschow, an analyst at Barclays.

Rick Sherlund, an analyst at Nomura who has urged Microsoft to put its most lucrative franchise on the iPad for some time, welcomed the idea but was more cautious on the rewards. He estimates that an iPad Office would generate only $1 billion or so in new revenue a year, as many potential users will already have corporate licenses that can be converted to the new product.

And it's unclear how much of its revenue will be surrendered to Apple, which generally takes a 30 percent cut of app sales through its store. Microsoft and Apple declined comment.

OPTIMISM BOOSTS SHARES

The anticipation of Nadella's mobile-centric strategy has pushed Microsoft shares up 11 percent in the seven weeks since he took the helm, and they are now rolling along at 14-year highs.

On Thursday, Nadella is officially slated to talk about mobile and cloud strategies. But investors and industry executives will be just as attuned to any signals from the new CEO on whether he's willing to take Microsoft in a radically different direction.

To some investors, steering a new course for such a massive entity - Microsoft is the second-largest U.S. tech company by market value - is a daunting task. And some, who would rather have seen an energetic outsider like Ford Motor Co's Alan Mulally get the job, are yet to be convinced Nadella has the leverage to make the necessary change.

But bold moves with Office, and signifying a renewed drive to conquer the mobile arena and 'cloud' computing after years of shackling its best products to PC-centric Windows, are seen as a promising start.

"This is something that should have happened a few years ago," said J.P. Gownder, an analyst at tech research firm Forrester. "Holding Office for iPad as a hostage in the tablet war didn't work out well for them. They have to start to undo this negative behavior."

Nadella has more work to do as well on the devices side of Microsoft's business plan. Windows-powered phones are well reviewed but held only 3 percent of the global smartphone market last year. Its Surface tablet, an iPad competitor, had 2 percent of the tablet market, according to tech research firm Gartner.

Microsoft's $7.2 billion deal to buy the handset unit of Nokia, now delayed in closing, is unpopular with many investors who view it as a doomed defensive play to curb Google Inc's Android's dominance in the smartphone market.

It is "an acquisition not even a mother could love," according to Nomura's Sherlund.

Wall Street will be listening for Nadella's thoughts on the Xbox, the subject of renewed spin-off talk recently, and his willingness to buy his way into cloud-based computing services exploited by growing startups such as Dropbox and Evernote.

"M&A specifically on cloud is going to be key, around big data, cybersecurity, software-centric deals," said Ives at FBR. "Give investors a bone, and they will believe."

(Reporting by Bill Rigby; Editing by Bernard Orr)

FILED UNDER:
We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (12)
gcf1965 wrote:
I think it is a great idea as no other office suite has anywhere near the capability of MS Office. However, I do think it will be as big a player as thought. Tablets are great fun and modestly useful for on the go moments, but they simply cannot provide the usefulness of laptops and definitely not the efficiency of getting work done as multi-screen desktop machines. Tablets are cool tech, but not as usefula as any maker/platform would have you believe.

Mar 25, 2014 1:14pm EDT  --  Report as abuse
nocroman wrote:
Good news, I hope Satya Nadella is prepared to handle the multi billion dollar lawsuit for violating contracts with millions of customers when they stop support for Windows XP and XP Pro. The Xp O/S license was a lifetime license for a customers computer, and as such msut be supported as long as that person still owns and uses said computer. The attempt to force customers to spend hundreds of dollars to upgrade to a new O/S every few years to keep profits coming in under the ospise that the new O/S is something brand new and better (Not true, see Vista vs. XP) while maintaining they have liftime rights to the software but not the responsibility to maintain that software for a lifetime does not make any sense. Business or otherwise. I believe that the courts will agree that lifetime rights of ownership requires lifetime of responsibility.
Microsoft MUST keep supporting Windows XP or give up their rights to that sofware and allow others to continue support and own the rights to All Windows versions that Microsoft has decided Not to support any longer.
Just how many times does Microsoft need to release a new O/S before they actually get it right?

Mar 25, 2014 1:25pm EDT  --  Report as abuse
Ben_Irwin wrote:
Why not Visio or Project for Apple OS?

Mar 25, 2014 1:27pm EDT  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.