(Adds details about investor talks, background about CEO search)
NEW YORK, Nov 5 (Reuters) - Microsoft Corp has narrowed its list of external candidates to replace Chief Executive Steve Ballmer to about five people, including Ford Motor Co chief Alan Mulally and former Nokia CEO Stephen Elop, according to sources familiar with the matter.
The world's largest software maker also has at least three internal candidates on its shortlist, including former Skype CEO Tony Bates, who is now responsible for Microsoft's business development, and Satya Nadella, the company's cloud and enterprise chief, the sources said.
Despite the shortlist, the process could still take a few more months, the sources said. In August, Ballmer said he would retire within 12 months.
The names of other candidates could not be learned, but the search committee is interviewing executives from a wide range of sectors, including life sciences and consumer, the sources said.
Microsoft declined to comment on the process and on behalf of the internal candidates. A Nokia representatives could not be reached immediately for comment late on Tuesday.
Ford spokesman Jay Cooney said: "There is no change from what we announced last November. Alan remains fully focused on continuing to make progress on our One Ford plan. We do not engage in speculation."
Investors have pushed Microsoft's board in recent months to look for a turnaround expert, such as Mulally and Computer Sciences Corp CEO Mike Lawrie, to succeed Ballmer.
Some investors have also suggested to the board that co-founder Bill Gates should step down from his role as chairman, saying he stands in the way of radical reform at Microsoft, which has lost ground to Apple Inc and Google Inc in mobile computing.
Gates has not indicated any intention of stepping down.
Investors are concerned that, with both Gates and Ballmer up for re-election to Microsoft's board, they will retain their influence over the company.
Members of the CEO search committee have continued to speak with dissenting shareholders in trying to delicately balance their demands, according to sources familiar with the conversations.
Activist shareholder ValueAct Capital Management was offered a board seat by Microsoft in August. Several sources said the investor will also be given the same access as the board to the final five candidates.
(Reporting By Nadia Damouni; additional reporting by Bill Rigby, Deepa Seetharaman and Nicola Leske; Editing by Paritosh Bansal and Andre Grenon)