With 7800 Job Cuts, It's Rebooting Time For Microsoft

by CXOtoday News Desk    Jul 09, 2015

microsoft

For Microsoft, the Nokia hangover is still on. In fact its so very strong that the tech major declared it would cut 7,800 jobs, or nearly 7 percent of its workforce, and write off about $7.6 billion related to its Nokia phone business. The company will also spend up to $850 million on restructuring as it believes rebooting is the way out.

CEO Satya Nadella announced the layoffs on Wednesday in an email to employees, calling the move a“fundamental restructuring of our phone business.” “I am committed to our first-party devices including phones,” Nadella wrote in the memo. “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.”

Microsoft announced the $7.2 billion takeover of Nokia in September 2013, finalizing the acquisition in April. The deal that was initiated during former CEO Steve Ballmer’s reign, left the company with a struggling business and only 3 percent of the smartphone market. According to some estimates, the venture may have lost the company as much as $9.7 billion since.

Over the past year, Microsoft has laid off 18,000 workers, cutting operations deemed insufficiently profitable. The company has around 118,000 employees worldwide. Some 2,300 of the 7,800 layoffs announced in the memo will be in Finland, where Nokia is based.

In an interview with BBC, the Finnish government said it was “disappointed with Microsoft’s decision” and will consider offering assistance to the workers affected. “The loss of so many jobs is very sad for the whole society and for the individuals affected,” the government in Helsinki said in the interview.

This time too, about a third of the layoffs will be in Finland, where Microsoft will shut down a product development unit, according to Finland’s national broadcaster YLE.

Nadella, who took over as CEO in February 2014, has been trying to salvage the company’s fortunes. Since then, the company has shifted its focus on cloud and enterprise software capabilities from hardware. But investors remained doubtful as the shift had not been offsetting weakening sales of Windows and Office and a shattering phone business.

Microsoft paid $7.2 billion for Nokia’s handset unit in 2014, an amount it is expected to write off now. The company also announced last month that Stephen Elop, the former head at Nokia, would leave.

“Overall, we believe Nadella’s proactive approach at cleaning up the Nokia acquisition is a positive “tipping of the hand” around Microsoft’s future focus on software,” FBR Capital Markets analyst Daniel Ives mentioned in a note

Cross Research analyst Shannon Cross told Reuters that she expects more cost cutting in the next couple of years as Microsoft needs to become more competitive in the smartphone market.

The company, which had more than 118,000 employees worldwide as of March 31, said on Wednesday it would take a restructuring charge of about $750-$850 million in its fourth quarter ended June 30. Researchers estimate the latest layoffs to reduce operating expenses by more than $1 billion on an annualized basis.

While the question that remains now is how Microsoft will manages to sort its hardware work and what will be Nadella’s next step, a Tech Crunch report aptly sums up the situation. “When you are desperate to change your single-sale business into a subscription run-rate, you are penny-conscious. And everything that is a detriment to that business model shakeup has to go,” and such is life in the IT industry.