Microsoft Restructures Amidst Nokia Flop
Microsoft is likely feeling buyer's remorse today as the Windows operating system maker announced plans to cut 7,800 jobs, mainly from its phone business, and write off $7.6 billion over its acquisition of Nokia.
The restructuring comes just weeks after Microsoft Corp. (Nasdaq: MSFT) announced a shake-up of its executive team, including the ousting of former Nokia CEO Stephen Elop, who was credited (or blamed) for Microsoft's $7.2 billion acquisition of the handset maker. Microsoft also recently sold its imagery acquisition operations to Uber and display advertising business to AOL. (See Elop's Out as Microsoft Refocuses Its Strategy.)
Today's restructuring of its phone hardware business is a continuation of new CEO Satya Nadella's plan to "better focus and align resources." As a result of the 7,800 planned job cuts, it will record an impairment charge of approximately $7.6 billion, in addition to a restructuring charge of between $750 million and $850 million. The job cuts come on top of the 18,000 positions Microsoft announced it would eliminate last year. (See Expect Further Cuts at Microsoft Devices – Analyst and Microsoft to Axe 12,500 Ex-Nokia Employees.)
"We are moving from a strategy to grow a standalone phone business to a strategy to grow and create a vibrant Windows ecosystem including our first-party device family," Nadella said in an email to employees. "In the near-term, we'll run a more effective and focused phone portfolio while retaining capability for long-term reinvention in mobility."
The news may look grim for the future of Microsoft as a smartphone maker, but Jackdaw Research Chief Analyst Jan Dawson, who covers the smartphone space, says it's not the last we've heard from Microsoft -- at least not yet.
"I feel like this still isn't the final outcome for the Microsoft devices business -- the business unit will still exist, and will still churn out phones, but it'll be smaller, leaner and more focused," he writes in an email to Light Reading. "The big question is how long it takes before Microsoft decides to abandon this business altogether."
Microsoft has made a big deal of Windows 10 as the one operating system for all devices, including PCs, tablets and smartphones. Considering that its own devices make up 95% of all Windows Phone devices on the market today, Dawson says, abandoning its phone business would basically kill off Windows on mobile.
That said, Android and iOS are doing a pretty good job of killing Windows Phone on their own. Dawson points out that Microsoft has really only found success in phones at the low end of the market, which isn't a sustainable business plan.
"The good thing is that Microsoft is clearly working hard on an alternative mobile strategy at the same time, rather than putting all its mobile eggs in the Windows Phone basket," Dawson says. "It's developing lots of apps, including some really good ones, for iOS and Android, so that if it does have to abandon Windows Phone, it will at least still have a foothold in the mobile business."
Microsoft plans to share more information on the restructuring and its new strategy on its fourth-quarter earnings call on July 21. The company's stock was up slightly, by 0.27% or 0.12 points, to $44.42 on Wednesday afternoon.
— Sarah Thomas, , Editorial Operations Director, Light Reading