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Cramer: Hey Nadella, here's why Microsoft needs a spinoff

As Microsoft prepares to transition to life under Satya Nadella, the company's head cloud computing architect named CEO on Tuesday morning, the tech giant should consider spinning off its lucrative video game business, CNBC's Jim Cramer said.

"If you break the company up it could be worth a lot of pieces," Cramer said on "Squawk on the Street."

A spinoff will help "move the needle" at the company, Cramer said on Tuesday, moments after Microsoft made the long-awaited announcement of its next CEO, a process that took several months and went through several names.

(Read more: Microsoft names Nadella as CEO)

"You just do not get any value for Xbox in the embedded Microsoft," Cramer said. "I'd love to have an entertainment company that is Xbox and Skype. I would love that piece of paper. That could be a piece of paper where you could really see some money going that way."

While Cramer lauded Microsoft's most recent quarter, he said the company sorely needs someone to "start reshuffling the deck" and cause "fundamental change."

Cramer also questioned the move to keep former CEO Steve Ballmer on Microsoft's board of directors, contending that the outgoing executive should expand his horizons.

(Read more: Watch for some big changes to Microsoft's board)

"It makes no sense to me," Cramer said. "This is when Ballmer should go do big things."

(Read more: Microsoft's new CEO: An insider and a 'cloud' man)

Nadella seems well-positioned to help the company, Cramer said, given his experience with the cloud-computing division of Microsoft.

"I do think the cloud division of the company is the one part of the company that kind of seems to have the thesis of where America is going," Cramer said.

Microsoft shares opened slightly up when trading began Tuesday morning. (Check out what shares of Microsoft are doing now.)

—By CNBC's Jeff Morganteen. Follow him on Twitter at @jmorganteen and get the latest stories from "Squawk on the Street." Reuters contributed to this story.

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