Microsoft to slash 18,000 jobs, many of them former Nokia workers

The axe is falling for former Nokia handset workers. In its largest round of layoffs to date, Microsoft (NASDAQ: MSFT) said it will cut up to 18,000 jobs this year, or 14 percent of its workforce. It is expected that many of those cuts will be to employees the company acquired when it bought Nokia's (NYSE:NOK) devices and services business for around $7.4 billion.

Microsoft said it will slash 12,500 professional and factory positions "through synergies and strategic alignment" of the Nokia business. Microsoft expects the cuts to be  substantially complete by year-end and fully complete by June 30, 2015. The software giant said it expects to incur pre-tax charges of $1.1 billion to $1.6 billion over the next four quarters.

As of early June Microsoft had around 127,000 total employees when factoring in the roughly 30,000 employees that it acquired in the Nokia deal.  

Rumors of the job cuts have been brewing for months and the speculation reached a boil the past week after Microsoft CEO Satya Nadella issued a lengthy email to all Microsoft employees outlining his vision for the strategic direction of the company, which he said will be based around productivity and platforms.

Nadella hinted at job cuts in that memo and wrote that "every team across Microsoft must find ways to simplify and move faster, more efficiently. We will increase the fluidity of information and ideas by taking actions to flatten the organization and develop leaner business processes."

In a new email to employees on Thursday, Nadella wrote that the company will begin cutting the first 13,000 jobs, and the vast majority of employees whose jobs will be eliminated will be notified over the next six months.

"It's important to note that while we are eliminating roles in some areas, we are adding roles in certain other strategic areas," he wrote. "My promise to you is that we will go through this process in the most thoughtful and transparent way possible. We will offer severance to all employees impacted by these changes, as well as job transition help in many locations, and everyone can expect to be treated with the respect they deserve for their contributions to this company."

When Microsoft agreed to buy Nokia's struggling handset division in September 2013 it pledged to create $600 million in annual cost savings within18 months after the deal's closing, which came at the end of April. Before Microsoft acquired the Nokia division, Nokia had already cut tens of thousands of jobs under the leadership of Stephen Elop, who is now back at Microsoft as an executive vice president in charge of the company's devices business.  

In terms of the Nokia team itself, Nadella wrote that the company's in-house, first-party phone portfolio "will align to Microsoft's strategic direction." To win in the higher price tiers, he wrote, Microsoft "will focus on breakthrough innovation that expresses and enlivens Microsoft's digital work and digital life experiences."

Elop expanded on this and essentially said that Nokia workers' roles had to change now that they are part of Microsoft. "It is particularly important to recognize that the role of phones within Microsoft is different than it was within Nokia," he added in a separate memo. "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. Our device strategy must reflect Microsoft's strategy and must be accomplished within an appropriate financial envelope. Therefore, we plan to make some changes."

Elop said the devices team will primarily focus on Windows Phones and driving the platform down to lower price points. Notably, Nadella and Elop wrote that Microsoft plans to shift away from Nokia's X Android phones.

Nadella wrote that "select" Nokia X product designs will become Lumia products running Windows Phone. Microsoft confirmed to Re/code that despite the use of the word "select," it does not plan to make future Android-based Nokia X phones. Nokia X phones run on a forked version of Google's (NASDAQ: GOOG) Android platform but have Microsoft services like OneDrive cloud storage and Skype. The X phones were positioned as cheaper alternatives to low-end Lumia phones. "This builds on our success in the affordable smartphone space and aligns with our focus on Windows Universal Apps," Nadella added.

Elop added that Microsoft plans "to deliver additional lower-cost Lumia devices by shifting select future Nokia X designs and products to Windows Phone devices. We expect to make this shift immediately while continuing to sell and support existing Nokia X products."

Nokia will consolidate the former Smart Devices and Mobile Phones business units into one phone business unit that will be responsible for all phone efforts. Under the plan, the phone business unit will be led by Jo Harlow, with key members from both the Smart Devices and Mobile Phones teams in the management team.

"As part of the effort, we plan to select the appropriate business model approach for our sales markets while continuing to offer our products in all markets with a strong focus on maintaining business continuity," Elop wrote. "We will determine each market approach based on local market dynamics, our ability to profitably deliver local variants, current Lumia momentum and the strategic importance of the market to Microsoft. This will all be balanced with our overall capability to invest."

Microsoft's phone engineering efforts targeted at future, high-end Lumia devices are expected to be concentrated in Salo, Finland. Engineering efforts targeted at more affordable products will be concentrated in Tampere, Finland, Elop added. The Nokia team will "ramp down"  engineering work in Oulu, Finland. While Microsoft plans to reduce the engineering work it does in Beijing and San Diego, Calif., both sites will continue to have supporting roles, including affordable devices in Beijing and supporting specific U.S. requirements in San Diego.

"In short, we will focus on driving Lumia volume in the areas where we are already successful today in order to make the market for Windows Phone," Elop wrote. "With more speed, we will build on our success in the affordable smartphone space with new products offering more differentiation. We'll focus on acquiring new customers in the markets where Microsoft's services and products are most concentrated. And, we'll continue building momentum around applications."

"Making these decisions to change are difficult, but necessary," Nadella concluded in his memo. He said will answer questions in a sessions with employees and also pledged to  "share further specifics on where we are focusing our innovation investments" during Microsoft's earnings conference call on July 22.

For more:
- see this release
- see this Nadella memo
- see this Elop memo
- see this WSJ article (sub. req.)
- see this Re/code article
- see this Reuters article

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