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Microsoft to cut up to 18,000 jobs over next year

First Published Jul 17 2014 09:17AM      Last Updated Jul 17 2014 05:36 pm

Los Angeles • Microsoft announced the biggest layoffs in its 39-year history Thursday, outlining plans to cut 18,000 jobs in a move that marked the CEO’s sharpest pivot yet away from his predecessor’s drive for the company to make its own devices.

Although some cuts had been expected ever since Microsoft acquired Nokia’s mobile-device unit, the number amounted to 14 percent of the Microsoft workforce — about twice what analysts had estimated.

The cuts will include some 12,500 jobs associated with the Nokia unit — nearly half of the 28,000 employees Microsoft brought on board in April through the acquisition.



When the cuts are complete, the company will still have about 10,000 more employees than before the Nokia acquisition, with an overall headcount of 109,000.

In a public email to employees, CEO Satya Nadella said the changes were needed for the company to "become more agile and move faster." The move also pushes Nokia to focus solely on the Windows Phone operating system.

Nadella is clearly backing away from former CEO Steve Ballmer’s strategy of getting Microsoft to make its own smartphones and tablets.

"He’s making a pretty serious game-changing strategy move away from hardware," said Michael Turits, managing director of equity research for financial services company Raymond James & Associates.

Nadella indicated that Microsoft will largely abandon low-price Nokia Asha phones — which work on their own non-Windows operating system — and reverse a strategically questionable move by Nokia in February to launch a line of phones called "X" that supported rival Google Inc.’s Android platform.

"To win in the higher price tiers, we will focus on breakthrough innovation that expresses and enlivens Microsoft’s digital work and digital life experiences," Nadella said in the memo.

Some 1,350 Seattle-area workers around Microsoft’s Redmond, Washington, headquarters were laid off Thursday, as were 1,800 workers in Hungary and nearly 370 in San Diego. The Nokia cuts include 1,100 jobs in Finland.

In addition, the company is closing its Xbox Entertainment Studios, a 2-year-old venture based in Santa Monica, California, that produced original video content but was seen as separate from Microsoft’s core business.

Microsoft Corp. expects charges of $1.1 billion to $1.6 billion over the next four quarters, largely for severance payments. The move puts the company on track to meet the target it set in September, when it announced the Nokia purchase, of saving $600 million in annual costs within 18 months after the deal closed. Ballmer announced the Nokia deal a month after he said he was resigning.

FBR Capital Markets analyst Daniel Ives said the cuts were about double what Wall Street was expecting.

"Microsoft needs to be a leaner and meaner technology giant over the coming years in order to strike the right balance of growth and profitability around its cloud and mobile endeavors," he said.

The move dwarfs Microsoft’s previous biggest job cut, when it eliminated about 5,800 jobs in 2009. That was the company’s first widespread layoff.

Microsoft has been shifting its focus from traditional PC software to cloud computing and cloud-based products like its Office 365 productivity software that can operate on mobile devices.

With its $7.3 billion acquisition of Nokia’s cellphone business, Microsoft had sought to meld its software and hardware business into a cohesive package, similar to rival Apple.

But investors had lingering doubts about the strategy, especially because the two brands’ market share in smartphones and tablets was so far behind Apple and Samsung. According to the latest financials, the Surface and Nokia device units are both losing money.

 

 

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