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Expect Further Cuts at Microsoft Devices – Analyst

Susan Fourtané
News Analysis
Susan Fourtané
7/22/2014
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Microsoft's decision to drastically reduce the size of its Devices Group is unlikely to be the end of the blood-letting at what used to be the Nokia devices business, according to experienced and respected industry analyst Tomi Ahonen, who also believes Elop's days are numbered in his current role.

Microsoft Corp. (Nasdaq: MSFT) last week announced that it is to make 18,000 staff redundant, including 12,500 employees who joined when the software giant acquired the Nokia devices business earlier this year. (See Microsoft to Axe 12,500 Ex-Nokia Employees.)

Of the 12,500 ex-Nokia staff who will lose their jobs, about 1,100 will be in Finland, where the former Nokia R&D center at Oulu will be closed with the loss of 500 jobs. When Microsoft acquired the Nokia devices business, about 4,700 staff in Finland transferred to the new owner, so the Finnish cuts will affect almost a quarter of all those in Finland who made the transition. (See Microsoft Officially Closes Nokia Buy.)

Microsoft's decision is being regarded in Finland as a broken promise and a betrayal, and the Finnish government has called on the company to accept greater social responsibility.

Ahonen, a former Nokia employee who has been tracking the demise of the Finnish company's mobile phones business for years, and who was scathing in his criticism of the Microsoft acquisition, believes the job cuts are a clear indication that the Lumia handset line is failing, and that Microsoft Devices staff "should be mentally prepared" for further headcount reductions. "The prospects for Microsoft hardware, and especially low-cost phones, are not promising, so this unit is very much in jeopardy," Ahonen told Light Reading.

The analyst, who has just written an expansive blog explaining why he considers the demise of Nokia to be one of the most shocking recent disasters in the global economy, believes the negative impact of the Microsoft cuts will be felt particularly in Oulu, where the R&D unit outsourced work and had many local partners and other businesses reliant on the operation.

He also wonders how the staff who survive the cuts can be properly motivated, or any longer trust Stephen Elop, the Microsoft Devices chief and former Nokia CEO who announced the cuts in an ill-judged memo to staff last week. (See Microsoft's Elop Denies He Was a Trojan Horse and Eurobites: Elop's Golden Parachute Inflates.)

The analyst reckons Microsoft Devices is already on a slippery slope, with Elop having made a series of blunders. "Elop has mismanaged the [former] Nokia handset business so badly that those remaining with Microsoft handsets will be better off when Elop is removed from being in charge. Expect that within one year," predicts Ahonen.


What's the future of mobile? Check out our dedicated 5G content channel here on Light Reading.


But Ahonen also believes that the demise of the Oulu unit might kickstart some fresh innovation and startup activity. "There is hopefully a silver lining to this case, as Oulu's R&D work can now be released into ideas that various Finnish companies could maybe exploit… [ideas] that Microsoft, or Nokia under Elop, didn't necessarily see, or believe in," he said.

Finland has already started to lose faith in what was, until recently, the country's defining business. "I think Finland was already moving well past Nokia/Microsoft/Lumia, and not considering it the domestic phone brand anymore… [the cuts] only serve to further alienate Microsoft Lumia from the Finnish market. That won't bother Microsoft, as Finland is so tiny in the big picture," he added.

Ahonen believes that new businesses may spring from the remnants of the Oulu R&D unit, in much the same way that upstart smartphone developer Jolla has done during the past few years. (See Euronews: Jolla Claims a Sailfish Sellout .)

"Now would be a good time for Jolla to introduce a new model for Finland -- before Christmas, at least -- to capitalize on this," he added.

— Susan Fourtané, special to Light Reading

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jabailo
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jabailo,
User Rank: Light Sabre
7/23/2014 | 9:46:58 AM
Re: No liferafts in the water
IBM never had a technological edge when it ran its COBOL and RPG shops...it simply had the largest base of existing code and trained programmers to entrench it.   Microsoft has that now in many business applications built on .NET and SQL Server.

As far as mobile, and so on, no it doesn't have a lock on those markets, but in its new form, does it need to?   We are entering what I call the Pocket Calculator era of computer pricing.    Like back in the early 80s when a pocket calculator went from an exotic tool to something you can pick up for $20 at the supermarket.   You can now get Android tablets in bulk for $33 off vendors on Alibaba.com!    So why bother "dominating" what is a commodity market?   You want high value return and that comes from business applications.  

The Azure Cloud (which I just read has increased its revenue by 50% this quarter) is the new IBM mainframe.

 The other thing is future business applications will become more and more machine-to-machine.   The final step of interface may not even appear in the system or only as an occasional window or model.   Business will take place between computers, even buying, selling and trading once all the monitors are in place.  Take inventory for example...that can be fulfilled automatically by computers as stock runs out.  But based on business rules encoded in .net and sql applications.  That's where a Microsoft House could shine.

 
Susan Fourtané
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Susan Fourtané,
User Rank: Blogger
7/23/2014 | 9:26:30 AM
Re: VCs surely heading to Oulu...
Ray, 

"IT makes sense to me that Finland will now become a hotbed of mobile applications and  device startups, as long as there are some willing VCs...."

Every November Finland is flooded with VCs from Silicon Valley and Europe who come to the Slush startup conference. Maybe this year several new mobile apps and device startups from Oulu join the conference in Helsinki. 

-Susan
Kruz
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Kruz,
User Rank: Light Sabre
7/23/2014 | 8:20:26 AM
Re: No liferafts in the water
@jabailo:

I totally agree with your reasoning but how do you see it happening? There isn't an area where they have an edge currently and they are trailing behind, even in the cloud business.

So how do they counterattack in order to secure desktop, or even ultimately, gain smartphones? Wearable?
smkinoshita
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smkinoshita,
User Rank: Light Sabre
7/22/2014 | 10:41:21 PM
Re: No liferafts in the water
@Jabailo:  And on that note -- I wonder if they'll go down the same path and be split into smaller pieces.
jabailo
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jabailo,
User Rank: Light Sabre
7/22/2014 | 9:51:58 PM
Re: VCs surely heading to Oulu...
SmartPhones used to cost $700...now you can buy them, like I did, on sale for $80.

Clever Finns may have sold the biggest white elephant of the century and moved on to where the action is.

 
jabailo
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jabailo,
User Rank: Light Sabre
7/22/2014 | 9:42:13 PM
Re: No liferafts in the water
Their biggest strong point right now is business application computing platforms.  SQL server, the Azure cloud and development tools.

In that sense they may end up becoming what IBM was from 1970 to 1990s...the solid secure technology that as they used to say "no one got fired for choosing".
smkinoshita
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smkinoshita,
User Rank: Light Sabre
7/22/2014 | 9:08:37 PM
Re: No liferafts in the water
@Jabailo:  I agree with the estimate of a failed gamble, that seems to be the Microsoft MO as far back as oh... say Windows Vista?

Microsoft didn't have to worry about such gambles back in the day because they didn't have competition like today's Apple & Google.  I don't think they ever really got the whole mindset of the Internet, and I think it's because they've always been a sort of socially stunted company.  It wasn't such a big deal when it was just a matter of nerd power, but with the greater connectivity of today those soft skills are really important.  That's my take at least.

The whole business is quite nasty and I think things will get worse before they get better, and there's going to be more messes that other people will have to clean up.  I hope for the best for those cut.
shashidhara
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shashidhara,
User Rank: Light Beer
7/22/2014 | 8:32:59 PM
Re: VCs surely heading to Oulu...
Some more innovations....
kq4ym
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kq4ym,
User Rank: Light Sabre
7/22/2014 | 5:47:45 PM
Re: VCs surely heading to Oulu...
It must be very disconcerting for Finland and the Finnish workers to find that all these cuts are taking place. It's probably true that the device manufacturing is coming to an end and Finns will look forward to more of the service end of the scale now, which hopefully can keep expanding to keep those workers productive and employed.
Ariella
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Ariella,
User Rank: Light Sabre
7/22/2014 | 2:05:39 PM
Re: VCs surely heading to Oulu...
@Susan do you share Ahonen's cautious optimism in this instance? 
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