UPDATE 3-Microsoft names Nadella server unit head

Wed Feb 9, 2011 8:59pm GMT

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* Bing engineering chief Nadella to head unit

* Muglia departure announced last month

* Shares down 1 percent (Changes dateline from NEW YORK, adds background, analyst comment, byline)

By Bill Rigby

SEATTLE, Feb 9 (Reuters) - Microsoft Corp (MSFT.O) put veteran insider Satya Nadella in charge of its $15 billion server and tools business as it looks to an expert engineer to revitalize its push into cloud computing.

Nadella, 43, is a rising star at the company after leading engineering efforts for Microsoft's online services business, including the search engine Bing, which has made headway against market leader Google Inc (GOOG.O).

He takes over from Bob Muglia, who announced plans to step aside last month.

A 19-year Microsoft veteran, Nadella has "the right mix of leadership, vision and hard-core engineering chops," Microsoft Chief Executive Steve Ballmer said in a memo to employees, which was made public.

Nadella, working under online services unit chief Qi Lu, has been credited as a major force in pushing Microsoft new search engine up to 12 percent market share from 8 percent before Bing's launch in June 2009, and helping with the integration with Yahoo Inc's (YHOO.O) search operation.

"Satya is a star. What they've done with Bing is pretty impressive," said Richard Williams at Cross Research. "There's no one better to try to pick up the reins at a big, important unit at Microsoft than someone who is just coming off innovating and creating change in an organization that desperately needs change."

Ballmer, who said last month it was his decision to put in new leadership, indicated that he wants large-scale change to make Microsoft a leader in the cloud sector.

"We wanted someone who could define the future of business computing and further expand our ability to bring the cloud to business customers and developers in game-changing ways," Ballmer said in his memo.

Microsoft has made great strides in the past few years in cloud computing -- broadly the provision of software, storage and computing power over the Internet -- and now wants to sell such services to mainstream businesses, taking on cloud pioneers such as Salesforce.com Inc (CRM.N) and VMware Inc (VMW.N).

The server and tools business -- Microsoft's third-largest behind its Windows and Office units -- sells the software and support behind the computer systems and data centers that make up the infrastructure of the new "cloud."

Ballmer said he looked outside the company as well as inside for the new unit head. Muglia is to stay at the company until this summer to ease the transition.

Amitabh Srivastava, senior vice president at the server and tools unit and regarded as a candidate to head the unit, is to leave the company, Microsoft said.

Microsoft's shares slid 1 percent to $27.99 on Nasdaq in a broadly lower market. (Reporting by Bill Rigby, editing by Gerald E. McCormick, John Wallace, Gary Hill)

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