Light Reading

Microsoft to Axe 12,500 Ex-Nokia Employees

Sarah Thomas
7/17/2014
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The day many ex-Nokia employees have been dreading is here. In what will be its biggest round of layoffs ever, Microsoft plans to eliminate 18,000 positions over the next year, including 12,500 associated with its Nokia acquisition.

The Redmond, Wash.-based company said on Thursday that it would incur a restructuring charge of $1.1 billion to $1.6 billion as part of its plan to "simplify its organization and align the recently acquired Nokia Devices and Services business with the company's overall strategy." The costs include $750 million to $800 million in severance and related benefit costs and $350 million to $800 million in asset-related charges. (See Eurobites: Ex-Nokia Staff Fear Microsoft Axe.)

It's starting with 13,000 cuts now with the rest coming this year. Out of the 18,000 slated to get the axe, 12,500 will be professional and factory positions made redundant after the Nokia acquisition in April. That represents nearly half of the approximately 30,000 Nokia employees that came over in the deal. (See Microsoft Officially Closes Nokia Buy and Nokia: It's Really Happening.)

Microsoft Corp. (Nasdaq: MSFT)'s notorious EVP Stephen Elop and new CEO Satya Nadella broke the news to employees in separate memos explaining the layoffs as a necessary step in the company's strategy to become a productivity and platform company. Nadella noted that Microsoft would also be adding some positions and doing away with several layers of management to be more agile. (See Nadella Promotion Ends Microsoft CEO Search and Microsoft's Elop Denies He Was a Trojan Horse .)

The new mobile phone business unit will be led by Jo Harlow and phone engineering will take place in Salo, Finland for future, high-end Lumia products and Tampere, Finland for more affordable devices. Nokia's former headquarters in Espoo, Finland, will be used for app software development. (See Nadella's full memo here and Elop's here.)

Nadella also said the company would work to win with higher price tiers by focusing on innovation around Microsoft's digital work and digital life experiences, as well as shift select Nokia X product designs to become Lumia products running Windows for the affordable smartphone space.

"The roots of this company and our future are in productivity and helping people get things done," Elop added in his memo. "Our fundamental focus -- for phones, Surface, for meetings with devices like PPI, Xbox hardware and new areas of innovation -- is to build on that strength."

Microsoft faces a significant challenge in "making the market for Windows Phone," as Elop said. Its operating system has been a distant third to Android and iOS and, likewise, Nokia struggled to keep up with Apple Inc. (Nasdaq: AAPL) and Samsung Corp. in device hardware, finding the most success in the low-end market. Today's announcement signifies Microsoft's move to Windows Phone only. According to Jackdaw Research analyst Jan Dawson, that means a much smaller Nokia than in the past. It's going to be an uphill battle, he says, but not a lost cause.

"The challenge is that the feature phone business was more profitable than the smartphone business, and so overall profits will decline. At the same time, devices have a different role at Microsoft than they did at Nokia," Dawson writes in an email to Light Reading. "At Nokia, shipments themselves were the focus, but at Microsoft it's all about promoting Microsoft services, so even if it has a small market share and doesn't make much money, it can still be successful."

Microsoft shares were up 1.18%, or .52 points, to $44.60, on Thursday after news of the restructuring.

— Sarah Reedy, Senior Editor, Light Reading

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Susan Fourtané
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Susan Fourtané,
User Rank: Blogger
7/19/2014 | 12:13:52 AM
Re: Bye Bye Android
Kruz, 

True. Lots of people only wanted Android on a Nokia phone. The new Microsoft Lumia is not going to work, or any other of the phones. 

-Susan 
Susan Fourtané
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Susan Fourtané,
User Rank: Blogger
7/18/2014 | 11:57:39 PM
Re: How it was done
Mitch, 

There are not enough stars, or thumbs to show how much I liked your comment on Elop's memo. 

And, fedoras are great. I like fedoras, too. More men should wear them and more often. I only know a few who wear fedoras. Such a classy accessory. :) Great on Indie and Humphrey as well. Do you wear fedoras? 

-Susan
smkinoshita
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smkinoshita,
User Rank: Light Sabre
7/18/2014 | 4:30:50 PM
Re: How it was done
@FakeMitchWagner:  The fedora looks good on some people, but the bad part has to do with people who should not wear fedoras wearing fedoras and acting in a way that gives the hat a bad name.

In other news, I don't see Microsoft changing anytime soon.  It's a very engrained culture.
Mitch Wagner
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Mitch Wagner,
User Rank: Lightning
7/18/2014 | 4:13:30 PM
Re: Not just employees
Scott - You don't see new leadership reducing the insistence on the Microsoft Way?
Gabriel Brown
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Gabriel Brown,
User Rank: Light Sabre
7/18/2014 | 11:29:20 AM
Re: How it was done
You'd think there would be a place for Elop out of 18,000 eliminated positions.
Mitch Wagner
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Mitch Wagner,
User Rank: Lightning
7/18/2014 | 10:50:20 AM
How it was done
The memo from Steve Elop was long-winded and clumsy.

Having been laid off a couple of times myself, I can tell you my LEAST FAVORITE way of being laid off is being made to sit through a long speech about the company strategy and vision.

During which time I'm thinking, "Oh, yes, this is the strategy and vision for the company ABOUT WHICH I NO LONGER CARE BECAUSE I DON'T WORK FOR THEM ANYMORE?!"

 The best way to handle a layoff: "Sorry, you're laid off. Here's your paycheck. There's the door." The (former) employee no longer cares what you have to say and the thing he wants most in the world is to see you getting smaller in the rearview mirror. 

Also: Fedoras are bad now? I like fedoras. Indiana Jones wore a fedora. Humphrey Bogart wore a fedora. 
kq4ym
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kq4ym,
User Rank: Light Sabre
7/18/2014 | 9:33:15 AM
Re: Who saw this coming?
I think the word "challenging" is quite right. It's beyond some common sense to understand how Microsoft will hanle this new challenge. Maybe they have some unsaid business plan lurking behind the rhetoric?
R Clark
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R Clark,
User Rank: Blogger
7/18/2014 | 3:04:07 AM
Who saw this coming?
If you put two under-performing businesses together you will get one big under-performing business.

 
Kruz
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Kruz,
User Rank: Light Sabre
7/18/2014 | 2:19:05 AM
Re: Bye Bye Android
It seems inevitable to do the job cut but the timing couldn't be worse.

How can a customer potentially ever trust Windows/Nokia when buying a phone?

From the Symbian change, to Mameo, to now killing the X series (while X2 was just announced) and dashing the performing low end Ashas, Windows is just saying to the customers: I cannot guarantee you continuity if you purchase a Windows Phone.

It was never about HW, and an Android Phone running on Nokia HW was the only phone people wanted.

MSFT needs to step up in the software business, and open up its ecosystem as it badly needs a footstep in the smartphone OS business.

Seems like good news to BB for me.
smkinoshita
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smkinoshita,
User Rank: Light Sabre
7/17/2014 | 9:02:27 PM
Re: Not just employees
I think we're going to see a whole lot more rescrambling, axing, cutting, reorganizing and so on and so forth at Microsoft.  To me, the problem is trying to force the "Microsoft Way" regardless if it's the best idea or even a good idea.  This happened with Internet Explorer, Windows 8, XBox One, and will probably happen with the Windows Phone as well.
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