Microsoft’s CEO may come out swinging Thursday

ReutersMarch 26, 2014 

Satya Nadella, who took over as Microsoft Corp.’s chief executive last month, makes his public debut Thursday and is expected to go on the offensive right away with some bold strokes.

When Nadella hosts his first major news 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 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 — of 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.

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.

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.

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