Microsoft board preparing to name Nadella as CEO - report

SEATTLE (Reuters) - Microsoft Corp's board is preparing to name internal executive Satya Nadella as the software company's next chief executive, Bloomberg reported on Thursday, citing unnamed sources it said were briefed on the CEO search process.

The board is also considering replacing Chairman Bill Gates, possibly with lead independent director John Thompson, Bloomberg said.

Sources had previously told Reuters that Microsoft was down to a "handful" of candidates, including Nadella, executive vice president of the cloud and enterprise group, and Tony Bates, executive vice president of business development, plus at least one external candidate.

Bloomberg added the Nadella plans had not been finalized. Microsoft declined to comment.

Microsoft shares rose 0.8 percent to $37.15 after hours, after gaining slightly in regular Nasdaq trading.

Nadella, a native of Hyderabad, India, was promoted to run Microsoft's fast expanding internet-based computing initiative in July last year as part of current CEO Steve Ballmer's radical re-organization of the company.

Before that he was in charge of Microsoft's growing server and tools business, following on from high-level roles in Microsoft's Office and Bing search engine units.

"He's a solid choice," offering continuity of strategy and proven execution, said Sid Parakh, an analyst at fund firm McAdams Wright Ragen,

Some investors had campaigned for an external CEO who might be more likely to shake up the company and reward shareholders with greater dividends and share buybacks, but Parakh said that did not mean Nadella would necessarily be unpopular with Wall Street.

"Any new CEO is going to have to have the shareholders' say in mind. But it's not certain that will translate into actions," said Parakh.

There have been calls for months for Gates to step down from a group of investors who believe the company's co-founder is a block to radical change and investor-friendly moves at the technology giant.

Some investors have urged Thompson to consider the CEO role himself, sources told Reuters this week. One person close to the board told Reuters on Thursday that Thompson was not in the frame to lead the company, but did not rule out a senior executive role, such as Chairman.

Microsoft's CEO search has taken longer than most expected when Ballmer announced his plan last August to retire within a year.

In a blog post on the company's website in December, Thompson emphasized the need for a CEO with good tech bona fides and "an ability to lead a highly technical organization and work with top technical talent."

Thompson, who leads the four-member CEO search committee, said at the time he expected the panel to reach a decision "in the early part of 2014."

The appointment of a company veteran like Nadella, which follows a months-long search and long flirtation with outsiders such as Ford Motor Co Chief Executive Alan Mulally, could disappoint some investors who were hoping for a more radical transformation at the software giant.

"While many on the Street are now expecting Mr. Nadella to get the CEO spot, we believe filling this position with a core Microsoft insider will disappoint those hoping for a fresh strategic approach (e.g. potential breakup of enterprise/consumer, Xbox spin off) an outside executive could have brought to the table," FBR analyst Daniel Ives said in a research note, adding that innovation and fresh strategies were essential for the company.

"With that said, we believe Mr. Nadella's prior roles in the Online Services Division, Business Division, and most recently as president of the Server and Tools business position him as a strong internal candidate with a broad set of knowledge around Microsoft's massive product portfolio," Ives wrote.

(Reporting by Bill Rigby; Editing by Bernard Orr and Andrew Hay)