Microsoft insiders tipped as CEO after Alan Mulally bows out

Speculation over Microsoft Corp's succession plans refocused on internal choices on Wednesday,after the leading outside candidate, Ford Motor Co CEO Alan Mulally, took himself off the list of potential CEOs at the world's largest software maker.

For months, Microsoft watchers had pegged Mulally as the odds-on bet to succeed Steve Ballmer as chief executive at the dominant producer of software for desktops and laptops.

But Mulally formally pulled out of the running on Tuesday, telling the Associated Press he would remain at Ford through 2014. It was unclear whether Mulally's withdrawal from consideration was his decision or Microsoft's.

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While the company's intentions remained a guessing game, internal candidates now seemed the obvious ones, especially in light of comments by Microsoft about the importance of tech know-how for the top job.

Sources familiar with the process have told Reuters that Microsoft is down to a "handful" of candidates, including insiders Satya Nadella and Tony Bates.

Former Nokia CEO Stephen Elop, a Microsoft veteran before moving to Nokia, whose mobile phone business Microsoft bought last year, has also been cited as a top candidate, as have one or more outsiders from the tech industry. As a former Microsoft executive who will soon rejoin the company when the takeover is complete, Elop was fingered in as now "front and centre" of the CEO race in a research note from FBR analyst Daniel Ives, who cited his "previous Microsoft experience and demonstrable expertise in the mobile space."

Evercore analyst Kirk Materne namedNadella and Bates as the leading internal candidates who "could potentially institute organizational change at a more rapid pace given their insider status."

Microsoft shares, which have gained 36 per cent over the past year, were down 1.2 per cent after Mulally's announcement, while Ford shares gained1.7 per cent at $15.65 on Wednesday.

Nomura's Rick Sherlund calledMulally's withdrawal "disappointing" in a research note, echoing the sentiment of some other investors and analysts. Sherlund said it was unclear who the board would turn to, saying he viewed Bates and Nadella as capable, but "more likely to take direction from Microsoft's board rather than redirect the board and take the company in a different direction as we prefer."

If the company does opt to go with an outsider, candidates could include Facebook Inc Chief Operator Officer Sheryl Sandberg, VMware Inc CEO Pat Gelsinger and Pivotal CEO Paul Maritz, Ives said.

Whoever takes over the tech behemoth is expected to transition it to mobile phone and tablet markets, where it has been a latecomer.