The layoffs will mostly hit employees in the former Nokia smartphone business. CEO Satya Nadella says Microsoft remains committed to phones but needs a dose of “reinvention.”
Microsoft is cutting more employees and restructuring its mobile phone business, in a costly maneuver that continues the company’s struggle in the smartphone market.
The software giant announced Wednesday that it will lay off 7,800 workers, most of them in its moribund smartphone unit, which it bought from Nokia last year to the tune of slightly more than $7.2 billion. The 7,800 positions being cut represent about 6.5 percent of the 118,584 employees Microsoft had as of March 31.
The company also said that as a result of the layoffs and restructuring, it will record a charge of around $7.6 billion related to assets it took aboard through its acquisition of the Nokia Devices and Services business, along with restructuring expenses of approximately $750 million to $850 million. In a nutshell, that means Microsoft paid too much for Nokia’s phone business based on how the unit is performing now, and the company wants to write off some of the now “worthless” assets.
Microsoft isn’t giving up on mobile phones, but rather is still finding its way.
“I am committed to our first-party devices, including phones,” Microsoft CEO Satya Nadella said in a statement Wednesday. “However, we need to focus our phone efforts in the near term while driving reinvention. We are moving from a strategy to grow a standalone phone business to a strategy to grow and create a vibrant Windows ecosystem that includes our first-party device family.”
Last month, Microsoft announced that Stephen Elop, the former CEO of Nokia who headed Microsoft’s devices group, was leaving the company. Joining him on the exit line was former Nokia executive Jo Harlow, who reported to Elop.
Microsoft has long been trying to make a greater dent in the smartphone market, one of the reasons it acquired Nokia’s handset unit. But it’s mired in a distant third place in the market, with a 2.5 percent share that’s going nowhere, far behind Apple and Android.
The company meanwhile is looking to Windows 10 as a white knight that will run apps across all manner of devices and bring new features and a new look to PCs, tablets and mobile phones. The operating system, set to launch July 29, is designed to offer a more unifying experience among computers and mobile devices. So Microsoft is hoping consumers who like Windows 10 on their PCs or tablets may be more drawn to mobile phones with the same software.
But even if Windows 10 is a stunning success, carving out a greater chunk of the mobile market is a huge challenge. Though Microsoft remains a significant software maker, with one version or another of Windows running on more than 90 percent of the world’s computers, it has stumbled for years in the mobile phone market and has yet to find a spark as developers and consumers alike remain fixated on Apple’s iPhone and on Android phones from Samsung and others.
The new layoffs are in addition to the 18,000 employees Microsoft said a year ago that it planned to let go, according to sources who spoke to The New York Times, which earlier reported on today’s announced job cuts. Most of those previously announced, 18,000 cuts involved the struggling Nokia division as well.
Wednesday’s round of layoffs had been expected. In an email distributed to employees last month, Nadella mentioned the need to make some “tough choices,” a phrase that often implies upcoming job cuts.
With Nadella at the helm, Microsoft has been trying to transform itself from a traditional software company into one that focuses on cloud-based services. Nadella’s mantra has been “mobile-first, cloud-first,” and he has been keen on empowering Microsoft’s mobile operations. But the Nokia purchase may have been more than the company could handle. Microsoft added around 25,000 employees to its ranks when it took over Nokia’s mobile phone business. And now with mobile phone sales still in the dumps, more of those employees may be looking for other jobs.
Microsoft said it expects the layoffs will take place over the next several months and that the write-offs announced Wednesday will be completed by the end of its fiscal year in June 2016