Microsoft to slash 7,800 jobs, mostly in phone unit, as smartphone efforts falter

Microsoft (NASDAQ: MSFT) said it will cut around 7,800 jobs, mostly from its phone business, and record an impairment charge of around $7.6 billion related to its purchase of Nokia's (NYSE:NOK) devices and services business. The layoffs and restructuring charges are the latest indication that Microsoft has not been able to gain traction in the smartphone market following its $7.2 billion deal for Nokia's handset business, which closed in April 2014.

The company will also book a restructuring charge of $750 million to $850 million related to the job cuts. The cuts were first reported by The New York Times, though that report did not detail how large they would be. The layoffs also come on top of a massive round of cuts the software giant announced last year.

In June 2014 Microsoft said it would cut around 18,000 jobs across the company, with 12,500 of those cuts coming from former Nokia workers that Microsoft acquired. Since the deal closed, Microsoft has focused on building entry-level and mid-range Lumia-branded Windows smartphones in a bid to gain global market share, though those efforts have not borne much fruit in terms of share gains.

The cuts come less than a month after Microsoft said its top devices executive, Stephen Elop, would be leaving the company. Elop, a Microsoft executive who had been CEO of Nokia, returned to Microsoft when the software giant completed the Nokia deal. Jo Harlow, the head of Microsoft's mobile phone business, is also leaving the company.

In an email to employees, Microsoft CEO Satya Nadella said that he remains "committed to our first-party devices including phones" but that Microsoft needs 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, he wrote, Microsoft "will run a more effective phone portfolio, with better products and speed to market given the recently formed Windows and Devices Group." Nadella said Microsoft needs to narrow its focus to three customer segments where it 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," he wrote.

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."

Nadella had warned Microsoft employees in June that the company would need to "make some tough choices in areas where things are not working and solve hard problems in ways that drive customer value."

As part of the changes Microsoft had announced last month, Terry Myerson will lead a new team at Microsoft called the Windows and Devices Group (WDG), which Microsoft said will enable its "vision of a more personal computing experience powered by the Windows ecosystem." The company will combine the engineering efforts of its current Operating Systems Group and Microsoft Devices Group (MDG) that Elop had led.

Microsoft's challenge right now is to not only produce high-end first-party phones that showcase its new Windows 10 software, which will come to phones in the second half of the year. The company also needs to convince hardware partners like Samsung Electronics, HTC, ZTE and others that Windows is a platform worth investing in. Without the support of other device makers building high-profile Windows phones, it's hard to see how the company will gain market share. According to research firm IDC, in the first quarter of 2015, Google's (NASDAQ: GOOG) Android commanded 78 percent of the global smartphone market, Apple's (NASDAQ: AAPL) iOS had 18.3 percent and Windows had 2.7 percent.

Microsoft will record a charge in the fourth quarter of fiscal 2015 for the impairment of assets and goodwill in its phone hardware segment related to the Nokia devices business. Based on the new plans, the future prospects for the phone hardware segment are" below original expectations," the company said in a statement. Nokia said that the job cuts and restructuring are expected to be substantially complete by the end of the calendar year and fully completed by the end of the company's next fiscal year, which runs through next June.

For more:
- see this release
- see this NYT article
- see this BGR article 

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