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Nadella, 43, has been with Microsoft for 19 years and most recently managed engineering efforts in the Online Services Division, including overseeing the cloud infrastructure that underpins the company's search, portal and advertising systems. He also helped launch Bing, Microsoft's online search engine, and helped integrate Bing and Microsoft's AdCenter with Yahoo.
In a statement, Microsoft said that under Nadella's leadership, "the Online Services Division has built a strong engineering organization by attracting some of the most experienced technical minds from within Microsoft and across the industry."
Ballmer, in his e-mail, extolled Nadella's leadership abilities and added: "He has strong collaboration skills, is decisive in both decision-making and delegating, and has strong customer insights, engineering and business expertise. He also knows how to structure organizations for outstanding performance."
Before joining Online Services Nadella worked within the Microsoft Business Solutions organization, which develops the Dynamics lines of ERP and CRM applications.
Nadella's appointment is effective immediately. Ballmer said Muglia would remain with Microsoft through the summer and help Nadella with the transition.
Microsoft has been hit with an exodus of executives in the last year -- some voluntary, some not. They include Office Division President Stephen Elop, CFO Chris Liddell, and Entertainment and Devices Division President Robbie Bach.