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Business News/ Companies / News/  Microsoft cuts 18,000 jobs amid Nokia integration
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Microsoft cuts 18,000 jobs amid Nokia integration

Microsoft will shift Nokia X to the Windows Phone operating system in order to broaden its products in the cheaper smartphone category

Microsoft said it will take pre-tax charges of $1.1 billion to $1.6 billion for the costs of the layoffs over the next four quarters. Photo: BloombergPremium
Microsoft said it will take pre-tax charges of $1.1 billion to $1.6 billion for the costs of the layoffs over the next four quarters. Photo: Bloomberg

Seattle: Microsoft Corp. said it will eliminate as many as 18,000 jobs, the largest round of cuts in its history, as chief executive officer (CEO) Satya Nadella integrates Nokia Oyj’s handset unit and slims down the software maker.

The restructuring, amounting to about 14% of its workforce, includes 12,500 Nokia factory and professional positions—half the number of employees added in the acquisition. At Microsoft, cuts will be in sales, marketing and engineering. The reductions are expected to be completed by 30 June 2015, and will result in a pretax charge of $1.1 billion to $1.6 billion, Microsoft said in a statement on Thursday.

Nadella, who took over from Steve Ballmer in February, is retooling the company’s structure as it seeks to compete with nimbler rivals offering mobile and Internet-based software and services. He’s also working to wring a promised $600 million in annual savings from Microsoft’s Nokia deal, which added 25,000 workers in April, bringing the total to about 127,100.

“Microsoft needs to be a leaner tech giant over the coming years in order to strike the right balance of growth and profitability around its cloud and mobile endeavours," said Daniel Ives, an analyst at FBR Capital Markets & Co. who rates Microsoft stock the equivalent of a buy. The cuts are roughly twice as big as Wall Street expected, Ives said in a note on Thursday.

The shares rose 2.8% to $45.30 at 10:01am in New York. They had advanced 18% this year through Wednesday.

Streamline management

The company will start with 13,000 cuts on Thursday and the majority of eliminated workers will be notified in the next six months, Nadella said in an e-mail to employees. The company will also have fewer layers of management and will make changes to its outside vendor staff, he said.

“The first step to building the right organization for our ambitions is to realign our workforce," he wrote.

Last week, in his first mission statement, Nadella said the Redmond, Washington-based software maker needs to become more focused and efficient and requires changes to its engineering teams. He pledged updates on the new plans later this month, and said he would provide more details when the company reports earnings on 22 July.

Microsoft investors are likely to view the cuts as a positive sign, illustrating that Nadella is trying to get costs and headcount under control and that he understands the challenges facing Microsoft, Ives said.

Mobile focus

“We view this as another step in the right direction from the Street’s perspective," he said in an interview. “Nadella is not wearing rose-coloured glasses."

In appearances at company and technology events since he took the helm, Nadella has reiterated that the company’s priorities are mobile and cloud products, as he works to shift Microsoft away from its longtime core business of software for personal computers. Nadella has signalled a desire to produce software for rival operating systems, like Apple Inc.’s iOS and Google Inc.’s Android, and has shuffled management in areas like marketing, business development and the Xbox game console.

While Microsoft has implemented smaller, intermittent job cuts in individual businesses—for example, trimming a few hundred positions in advertising sales and marketing in 2012, and some marketing jobs across the company earlier that same year—the 39-year-old company has only undertaken a company-wide restructuring affecting thousands of workers once before, in 2009, at the start of the recession. Over the course of that year, the company cut 5,800 jobs, or about 5% of its workforce at the time.

Cost savings

While Thursday’s layoffs are the company’s biggest ever, excluding the 12,500 positions being eliminated at Nokia, the 5,500 job cuts at Microsoft are smaller than those in 2009.

When Microsoft agreed to acquire the Nokia’s device unit in September, the software maker pledged $600 million in yearly cost savings in the 18 months after the deal closed. People with knowledge of the matter have said that honouring that commitment would probably involve job cuts in areas where the two companies overlapped.

Microsoft’s engineering teams have traditionally been split between program managers, developers and testers. Now, with new cloud-based methods of building software, it often makes sense to have the developers test and fix bugs instead of a separate team of testers, Nadella said in an interview last week after releasing his memo. At the time, he declined to say whether the changes would result in job cuts.

Nokia shift

The Nokia business, now part of Microsoft’s devices group, will also undergo some product changes as Microsoft ends production of phones with the rival Android operating system and targets the “more affordable smartphone segments", wrote devices group chief Stephen Elop, formerly the CEO of Nokia, in an e-mail posted on Microsoft’s site.

Microsoft will shift the Nokia X, which uses Google’s Android, to the Windows Phone operating system in order to broaden its products in the cheaper smartphone category. It will also align future high-end smartphone releases with major products from Windows and Microsoft’s applications team, Elop said.

The company will also combine what was two units at Nokia—Smart Devices and Mobile Phones—into one under executive Jo Harlow. Phone engineering will be based in Salo, Finland for high-end devices, and Tampere, Finland for cheaper ones. Engineering work in Oulu, Finland, will be scaled down. Engineering in Beijing and San Diego will see cuts and phone production will be focused mainly in Hanoi. Nokia will shift repair and manufacturing operation from Komaron, Hungary.

As the technology industry increasingly shifts toward mobile computing and cloud-based services, other technology companies have also sought to keep up by streamlining and firing workers. Hewlett-Packard Co. in May disclosed 16,000 more job cuts after reporting an 11th straight quarter of declining sales, on top of 34,000 in staff reductions already announced. International Business Machines Corp. also started dismissing workers earlier this year as part of a $1 billion restructuring to help it adapt to the industry’s changes. Bloomberg

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Published: 17 Jul 2014, 06:08 PM IST
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