Microsoft (Nasdaq: MSFT) has named Satya Nadella chief executive officer, tapping an insider steeped in business technology to speed a turnaround at a software maker that helped usher in the personal-computing age, only to be left behind as the world shifted toward the Web and mobile devices.

Nadella, 46, will replace Steve Ballmer effective immediately after a five-month search, Microsoft said in a statement today. Bill Gates, the company’s first CEO, will step aside as chairman and devote more time to product development, while remaining on the board and running his philanthropic foundation. John Thompson, the director who led the CEO search, becomes chairman.

The new CEO, who was born in India and joined Microsoft in 1992, takes over at a critical juncture. Consumers and businesses are shunning PCs in favor of handheld devices made by rivals, sapping demand for Microsoft’s flagship products. Besides playing catchup to the likes of Apple Inc. and Google Inc., Nadella will be tasked with completing strategy changes, begun by Ballmer last year. That includes integrating the $7.2 billion integration of Nokia Oyj’s handset unit and turning Microsoft into a provider of services and hardware.

“He’s really the complete package — he has incredible intellect but he also combines that with a deep curiosity and willingness to learn,” said Doug Burgum, who sold business- software developer Great Plains to Microsoft and oversaw Nadella while at the Redmond, Washington-based company.

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  • Analysis: Satya Nadella’s Microsoft DNA and experience in the “cloud” will be key in balancing innovation and corporate continuity as he replaces Steve Ballmer.

Nadella emerged as the top internal candidate by late November, people told Bloomberg News at the time.

While Nadella brings experience running cloud and enterprise businesses, he’ll need to boost Microsoft’s presence in consumer markets, where rivals have seized the lead. The first question on the minds of critics is whether the Microsoft veteran of 22 years can deliver the same fresh thinking as an outsider, said Daniel Ives, an analyst at FBR Capital Markets & Co.

“He has all the qualifications to take over, but the question for investors is will he be able to change things up,” said Ives, who rates Microsoft the equivalent of a hold.

Much will depend on the role of Microsoft’s board, where former CEOs Gates and Ballmer will remain directors. Thompson, the former Symantec Corp. CEO and International Business Machines Corp. executive, will also bring a new perspective as chairman.

“During this time of transformation, there is no better person to lead Microsoft than Satya Nadella,” Gates said in the statement.

Sprawling Empire

The transition at Microsoft follows the worst decline on record for PCs in 2013, when shipments dropped 10 percent and are projected to languish through 2017. Microsoft’s revenue growth has averaged 9.4 percent in the last 10 years, compared with 24 percent during the prior period. In the past decade, Microsoft’s stock has gained 88 percent including dividends, compared with a 91 percent rise in the Standard & Poor’s 500 Index.

The new CEO will oversee a sprawling empire of 130,000 employees once the Nokia acquisition closes in the next few months. Microsoft is seeking to remain relevant as consumers turn to mobile devices and the Web to check e-mail and access data, putting the brakes on sales of PCs, the main driver of Microsoft’s Windows and Office software. The acquisition of Nokia is aimed at speeding up the transition to device and services.

Cloud Business

In 2012, Microsoft’s Windows operating system had 19 percent of the consumer-computing market, according to Goldman Sachs Group Inc., down from 93 percent in 2000 when PCs were prevalent. In tablets and smartphones, Microsoft has less than 5 percent share of each market, according to researcher IDC.

Nadella, who was at Sun Microsystems Inc. before joining Microsoft, has worked on business software and services through much of his career. Born in Hyderabad, India, Nadella has a Bachelor’s Degree in electrical engineering from Mangalore University, a master’s degree in computer science from the University of Wisconsin–Milwaukee and an MBA from the University of Chicago.

He accelerated the move to Internet-based computing and worked to better connect cloud software with Microsoft’s programs for internal corporate networks. Nadella also promoted interoperability with rival programs and helped strike a deal to offer Oracle Corp.’s competing database software on Microsoft’s Windows Azure cloud service.

Microsoft Veteran

“Satya has the rare combination of technological depth, business savvy and strong people-leadership skills,” said Jeff Raikes, a former Microsoft executive and CEO of the Bill & Melinda Gates Foundation.

As president of Microsoft’s server business, Nadella boosted revenue to $20.3 billion in the fiscal year through June, up from $16.6 billion when he took over in 2011. That unit became cloud and enterprise when Ballmer revamped Microsoft’s structure in July.

Before being named to lead the server unit, Nadella held leadership roles in several different businesses within Microsoft, including Bing search engineering and technical strategy, and the company’s small business applications push.

“I couldn’t be more honored to have been chosen to lead the company,” Nadella said in the statement. “The opportunity ahead for Microsoft is vast, but to seize it, we must focus clearly, move faster and continue to transform.”

Tech Cycle

Nadella keeps an eye on the moves of nimbler startups and has pushed Microsoft executives to learn from what people outside of Redmond are doing, a person with knowledge of his management approach has said. At a technology conference in Paris in December, he spent time with local startups like video- on-demand company Video Futur Entertainment Group SA.

It’s important to speak with startups because “the tech cycle is such that the small guys make it big and the big guys die,” Nadella said in an interview at the time.

He’s also tried to alter the culture of his group, pushing people to add features first to cloud versions of programs rather than Microsoft’s traditional software, said James Staten, an analyst at Cambridge, Massachusetts-based Forrester Research Inc.

Nadella won’t be doing any interviews today, Mark Murray, a spokesman for Microsoft, said.

“His focus today is on partners, customers and employees,” Murray said. Nadella will hold a webcast for partners and customers, as well as an employee town hall later today.

In Demand

Nadella was paid $7.67 million for the fiscal year ended June 30, according to compensation research firm Equilar Inc., which examines corporate filings. Nadella also had 454,062 shares of unvested stock valued at $15.7 million as of that date, Equilar said. Inc. tried to recruit Nadella to serve as an executive when the world’s biggest online retailer built its cloud products, a person with knowledge of the matter said.

Kerri Catallozzi, a spokeswoman for Seattle-based Amazon, didn’t respond to a request for comment.

Gates, who along with Paul Allen founded the company in 1975, was the first CEO. He left that role in 2000, succeeded by Ballmer. Ballmer and Gates were hallmates in a Harvard University dorm before Gates convinced Ballmer to leave business school in 1980 to join Microsoft as its 30th employee.

Early Days

Ballmer, who initially served as the company’s business manager, almost quit several weeks after joining. Gates convinced him to stay by spinning his vision of a computer on every desk running Microsoft software, Ballmer said in a 2008 speech. With Ballmer playing a key role in many of Microsoft’s negotiations with PC makers, the two eventually made that vision a reality.

In 2000, when Gates stepped down as CEO, Ballmer took over, with Gates remaining as chairman. Gates, who has since devoted much of his time to philanthropic endeavors at the Bill & Melinda Gates Foundation, left day-to-day duties at the company in 2008. Gates said Jan. 21 that he’ll work on philanthropy full time for the rest of his life and contribute part time as a board member of the software maker.