July 17, 2014
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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