Microsoft will cut up to 18,000 jobs

07/17/2014 5:50 PM

07/17/2014 5:51 PM

Microsoft said Thursday that it planned to eliminate up to 18,000 jobs over the next year in a shake-up intended to help the company move more quickly in the market.

The cuts are the largest in the company’s 39-year history, representing about 14 percent of its workforce.

Microsoft will make the deepest cuts from the businesses it acquired from the Finnish phone maker Nokia. About 12,500 of the jobs being eliminated will come from the Nokia groups, or from overlap at Microsoft resulting from the deal. Microsoft said 1,100 job cuts would come from Finland, and 1,800 from a Nokia factory in Hungary.

That is about half the number of employees who joined Microsoft from Nokia a few months ago when Microsoft completed its acquisition of Nokia’s mobile business. In related news, Microsoft said it would no longer make Nokia phones based on the Android operating system, switching its low-end phones to Microsoft’s Windows Phone software.

Microsoft said it would take a charge of $1.1 billion to $1.6 billion to cover severance and related costs from the layoffs over the next year.

On Thursday, Satya Nadella, the company’s chief executive, said in an email to employees announcing the job cuts that the layoffs are an effort to become more agile, a message he has given repeatedly since he took the job in February.

“Having a clear focus is the start of the journey, not the end,” he said in the email. “The more difficult steps are creating the organization and culture to bring our ambitions to life.”

He added: “The first step to building the right organization for our ambitions is to realign our work force.”

Unpopular deal

The huge job cuts in the businesses it acquired from Nokia raise questions about Microsoft’s plans in the market for mobile devices. The acquisition, initiated by Steven A. Ballmer, Microsoft’s previous chief executive, greatly increased the company’s presence in the hardware business, which is outside its traditional expertise. The deal has been an unpopular one with investors and many people inside Microsoft.

“It is particularly important to recognize that the role of phones within Microsoft is different than it was within Nokia,” Stephen Elop, a former Nokia chief executive who now runs the devices group at Microsoft, said in an email to employees Thursday. “Whereas the hardware business of phones within Nokia was an end unto itself, within Microsoft all our devices are intended to embody the finest of Microsoft’s digital work and digital life experiences, while accruing value to Microsoft’s overall strategy.”

Big changes coming

Previously, the largest layoffs at the company were in 2009, when about 5,800 people were affected during the recession. Since then, Microsoft has had a few more rounds of job cuts, but the number of employees eliminated was typically in the dozens or hundreds.

In February, Nadella became the third chief of Microsoft as Ballmer stepped down, and Bill Gates, a company founder, left his role as chairman and become a technology adviser to Nadella.

Microsoft was often criticized for being unfocused during Ballmer’s tenure, and for having a swelling product line and layers of bureaucracy.

“Under the Ballmer era there were many layers of management and a plethora of expensive initiatives being funded that has thus hurt the strategic and financial position the company is in, especially in light of digesting the Nokia acquisition,” said Daniel Ives, an analyst at FBR Capital Markets, who called the cuts necessary.

Microsoft, a longtime leader in the technology industry, has struggled to find the same success in markets like mobile and Internet search that it did with personal computers. The company anticipated the rise of smartphones and tablet computers, but its products failed to capitalize on that foresight, and Apple and Samsung now dominate those markets.

Nadella signaled in a company memorandum last week that big organizational changes were coming soon. He sought to define his vision for Microsoft as a maker of productivity tools for a technology landscape shaped by cloud and mobile computing.

“We will increase the fluidity of information and ideas by taking actions to flatten the organization and develop leaner business processes,” he wrote in the memo. “Culture change means we will do things differently.”

Those statements were widely seen as foreshadowing some layoffs, and maybe even peeling off some business units. So far, Nadella has not dropped any major products or businesses.

Still, investors have welcomed his overtures. Shares have steadily risen since February and added more than 5 percent in the past week as rumors swirled about the layoffs. Microsoft shares closed Thursday at $44.53, up 45 cents.

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