Microsoft To Slash 7,800 Jobs, Nokia Deal Continues To Cost Company

Microsoft announced a restructuring Wednesday morning that primarily impacts its fledgling mobile phone business. Seven thousand and eight hundred jobs will be cut from the company, with the bulk of the positions lost coming from the Nokia division that was purchased during Steve Ballmer’s reign as CEO.

This is the second major restructuring that Microsoft has undertaken since Satya Nadella took over as CEO in February, 2014. Approximately 18,000 employees were laid off in Nokia’s devices and services business, representing a 14 percent reduction in Microsoft’s workforce.

The new job cuts and restructuring also mean a one-time $7.6 billion writedown for Microsoft. The company is not completely abandoning the mobile phone market, but it is clear that it is focusing its efforts elsewhere, as the Windows Phone line of business has struggled against the established Apple and Android products.

“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,” Nadella wrote in an email to Microsoft employees on Wednesday.

Initial reaction to the cuts was a small falloff in Microsoft’s starting stock price of $44.30 today. It is currently up approximately 0.10 percent, but is trending downward once again.

Today’s cuts were foreshadowed in a memo to employees last month, obtained by GeekWire.

“We are moving from a strategy to grow a standalone phone business to a strategy to grow and create a vibrant Windows ecosystem including our first-party device family,” Nadella wrote. “In the near-term, we’ll run a more effective and focused phone portfolio while retaining capability for long-term reinvention in mobility… 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.”

Microsoft reported 118,600 employees as of March 30, 2015, with approximately half of those located in the United States.

The 2013 purchase of smartphone maker Nokia was heavily criticized when initiated by former CEO Steve Ballmer. The deal was worth $7.17 billion at the time, which means that Microsoft’s writedown is more than what it originally purchased the company for.

“It is a deal that makes no sense,” Independent analyst Ben Thompson wrote of the Nokia acquisition (via CNN). “Adding on a mobile phone business that Microsoft probably should abandon is like attaching an anchor to said straitjacket and tossing the patient into the ocean.”

Microsoft is now looking forward to the release of Windows 10 on July 29. The new operating system is part of Nadella’s vision of a “vibrant Windows ecosystem” that runs across PCs, devices, and home consoles. It will be offered as a free upgrade to existing Windows 8 and Windows 7 users.

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