A source close to the company said no appointment was likely until the last week of January or in February. The source, however, asked that his identity should not be disclosed because they were not authorized to speak publicly about the process to select a successor to long-time CEO Steve Ballmer, who announced his retirement plan in August.

Microsoft executives are at the present focusing on the company's earnings scheduled to be released on January 23.

For months, Microsoft watchers had pegged Mulally as the odds-on bet to succeed Ballmer as chief executive at the dominant producer of software for desktops and laptops, which has faltered in making the transition to the fast-growing mobile phone and tablet markets.

But Mulally formally pulled out of the running on Tuesday.

It was unclear whether Mulally’s withdrawal from consideration was his decision or Microsoft's. 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.

Mulally appeared to be the front runner in the second half of last year and seemed to be interested in the job but Microsoft never made him an offer, suggesting that the prevailing mood on the company's board was that he was not right for the job, two sources familiar with the process said.

Sources also said that Microsoft is down to a "handful" of candidates, including insiders Satya Nadella, executive vice-president of the Cloud & Enterprise group, and Tony Bates, executive vice president of Business Development and Evangelism.

Former Nokia CEO and Microsoft veteran Stephen Elop, whose mobile phone business Microsoft bought in 2013, has also been cited as a top candidate.

Elop was mentioned as now ‘front and center’ 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 saw it differently and named Nadella 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 percent over the past year, were down 1.2 percent, while Ford shares gained about the same amount.

‘Dark horse’ in the running?

Nomura's Rick Sherlund labeled Mulally's withdrawal as ‘disappointing’ in a research note, echoing the sentiments of some 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’.

Sherlund agreed that Microsoft could still look at a ‘dark horse’ outsider but noted that some tech sector candidates, including Maritz, may have already declined to take the job.

In a blog post on the company’s website in December, Microsoft lead independent director John 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 he expected the panel to reach a decision ‘in the early part of 2014’.


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