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Microsoft Makes Cloud Captain CEO; Will He Maintain A Steady Course?

|Includes: Microsoft Corporation (MSFT)

By Scott Denne Michael Cote

Chatter about how Microsoft (NASDAQ:MSFT) lost its way and spread itself too thin characterized the end of Steve Ballmer's rein as CEO. Though the company is facing challenges from new competitors and two tectonic shifts in IT - mobile and cloud - that threaten a franchise built around the PC, Satya Nadella takes over as CEO while the company is still in a position of strength.

Microsoft posted 5% revenue growth in the past two years and sales of enterprise software, which make up more than half of its sales, grew faster at about 9% annually. The company already has promising assets that could enable it to maintain that growth. While it wasn't the first to cloud computing, its base of Windows Server and Office users will give Microsoft an easier time than most in making the transition to cloud. And while Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) currently have a lead among mobile developers, Microsoft still has a massive developer audience and was the company that invented the model of leveraging developers to grow a platform.

Given Nadella's background in building Microsoft's cloud and enterprise business, we expect future M&A to focus on ensuring that its enterprise offerings successfully transition to cloud. Microsoft has a history of taking a measured approach to expanding into new products - it's rarely the first into any new market - and given that Nadella spent the past 22 years at the company, we don't expect any drastic shifts in M&A strategy.

Microsoft itself often speaks to being a fast follower in technology, a stance that hasn't been appreciated with the rapid CAGRs of iOS and Android. However, it is a strategic approach to be reckoned with when a technology has all but reached mainstream, such as mobile and tablets right now, and perhaps cloud.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.