Microsoft to cut 7,800 jobs, take $7.6-bn Nokia writedown

Layoffs to be in the phone business; some India impact likely

American technology giant Microsoft on Wednesday announced around 7,800 job cuts as part of a reorganisation of the phone-hardware business it acquired through the buyout of Nokia last year. These layoffs will be in addition to the 18,000 announced in 2014. Microsoft also said it would write down $7.6 billion on its Nokia handset unit, wiping out nearly all of the business’ value.

The $7.6-billion impairment charge the company will take on account of the reorganisation will be related to assets associated with the acquisition of Nokia, and a restructuring charge of approximately $750 million to $850 million.

Meanwhile, speculation was rife about the announcement’s impact on the company’s India operations. Though the extent of job cuts in the country is not known, Nokia had huge operations in India, which was one of the largest markets for the phone maker. Experts said there could be some implication on the India team, since there was an overlap between the Nokia business and Microsoft’s existing phone business.


Microsoft India did not offer an immediate comment on the issue.

Some company insiders, however, said that the Nokia team had moved to the Microsoft India office early this week. The impact on the company’s India operations, like last time, was expected to be negligible. Others said the extent of damage was difficult to predict at this stage.

“Under Satya (Nadella), Microsoft is moving towards a comprehensive mobility strategy, rather than just focusing on hardware. It has already exited the feature phone business and will also exit from low-end phone market soon. So, they will need fewer people,” said Jaideep Mehta, managing director for India and South Asia, IDC India.

Mehta added another reason for rationalising the workforce could be the fact that Nokia had been consistently losing market share, putting cost pressure on the business. “Nokia’s headcount in India — mostly sales, support and marketing staff — is definitely not tiny,” he added.

In an email to employees, Microsoft global chief executive Nadella said: “I am committed to our first-party devices, including phones. 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.”

He added the company aimed to run a more effective phone portfolio, with better products and speed to market, given the recently formed Windows and Devices Group.

“We plan to narrow our focus to three customer segments where we can make unique contributions and where we can differentiate through the combination of our hardware and software. We’ll bring business customers the best management, security and productivity experience they need; value phone buyers the communications services they want; and Windows fans the flagship devices they’ll love.”

Mehta said the restructuring and right-sizing, looking from a long-term perspective, were a positive for Microsoft.

“Very clearly, it is good that it is focusing on the enterprise ecosystem. The more focus it puts there, the more beneficial position it will be in.”

Last week, the company had also announced changes to its mapping business, transferring some imagery acquisition operations to Uber and partnering with AOL and AppNexus for display advertising.

“Bing will now power search and search advertising across the AOL portfolio of sites, in addition to the partnerships we already have with Yahoo!, Amazon and Apple. Concentrating on search will help us further accelerate the progress we’ve been making over the past six years. Last year, Bing grew to 20 per cent query share in the US, while growing our search advertising revenue 28 per cent over the past 12 months. We view search technology as core to our efforts spanning Bing.com, Cortana, Office 365, Windows 10 and Azure services,” added Nadella.

The company will host an employee question-and-answer round on Thursday.

Here's the letter CEO Satya Nadella wrote to his employees

Team,

Over the past few weeks, I’ve shared with you our mission, strategy, structure and culture. Today, I want to discuss our plans to focus our talent and investments in areas where we have differentiation and potential for growth, as well as how we’ll partner to drive better scale and results. In all we do, we will take a long-term view and build deep technical capability that allows us to innovate in the future.

With that context, I want to update you on decisions impacting our phone business and share more on last week’s mapping and display advertising announcements.

We anticipate that these changes, in addition to other headcount alignment changes, will result in the reduction of up to 7,800 positions globally, primarily in our phone business. We expect that the reductions will take place over the next several months.

I don’t take changes in plans like these lightly, given that they affect the lives of people who have made an impact at Microsoft. We are deeply committed to helping our team members through these transitions.

Phones

Today, we announced a fundamental restructuring of our phone business. As a result, the company will take an impairment charge of approximately $7.6 billion related to assets associated with the acquisition of the Nokia Devices and Services business in addition to a restructuring charge of approximately $750 million to $850 million.

I am committed to our first-party devices including phones. 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.

In the near term, we will run a more effective phone portfolio, with better products and speed to market given the recently formed Windows and Devices Group. We plan to narrow our focus to three customer segments where we can make unique contributions and where we can differentiate through the combination of our hardware and software. We’ll bring business customers the best management, security and productivity experiences they need; value phone buyers the communications services they want; and Windows fans the flagship devices they’ll love.

In the longer term, Microsoft devices will spark innovation, create new categories and generate opportunity for the Windows ecosystem more broadly. Our reinvention will be centered on creating mobility of experiences across the entire device family including phones.

Mapping

Last week, we announced changes to our mapping business and transferred some of our imagery acquisition operations to Uber. We will continue to source base mapping data and imagery from partners. This allows us to focus our efforts on delivering great map products such as Bing Maps, Maps app for Windows and our Bing Maps for Enterprise APIs.

Advertising. We also announced our decision to sharpen our focus in advertising platform technology and concentrate on search, while we partner with AOL and AppNexus for display. Bing will now power search and search advertising across the AOL portfolio of sites, in addition to the partnerships we already have with Yahoo!, Amazon and Apple. Concentrating on search will help us further accelerate the progress we’ve been making over the past six years. Last year Bing grew to 20 percent query share in the U.S. while growing our search advertising revenue 28 percent over the past 12 months. We view search technology as core to our efforts spanning Bing.com, Cortana, Office 365, Windows 10 and Azure services.

I deeply appreciate all of the ideas and hard work of everyone involved in these businesses, and I want to reiterate my commitment to helping each individual impacted.

I know many of you have questions about these changes. I will host an employee Q&A tomorrow to share more, and I hope you can join me.

Satya