Microsoft layoffs demolish Nokia division

Microsoft's decimation of Nokia's devices and services business allows the company to focus on Windows Phone in the future.

Microsoft's Windows Phone and tablets may be able to rise from the ashes of the company's massive layoffs to the Nokia Devices and Services division this week.

Of the total 18,000 jobs being cut at Microsoft, 70%, or 12,500 positions, will occur in the Nokia division.  The remaining job cuts will hit positions in areas across the entire company. The massive workforce reduction represents 14% of Microsoft's overall total employee headcount of approximately 127,000 workers. The layoffs are scheduled to be mostly complete by the end of this year, and fully completed by June 30, 2015.

Microsoft's decision to cut a large part of Nokia's workforce is not a surprise to  industry observers. Speculation about job redundancies were raised when the company acquired Nokia last year and again when the purchase became finalized at the end of April.

"The layoffs are not just about Nokia but [CEO Satya] Nadella unwinding some of the realities of his predecessor and trying to align it with his own aspirations," said Bob Egan, CEO and founder of Sepharim Group, an IT consulting organization based in Falmouth, Massachusetts. "That's a plus."

Nadella has set the stage for Microsoft's strategic direction with mobile and cloud initiatives since being named CEO six months ago.

A big portion of this layoff is re-architecting the company for mobile from within.
Chris Hazeltonresearch director, 451 Research

Microsoft will consolidate its Smart Devices and Mobile Phones groups into one phone business unit led by Jo Harlow, according to a post by Stephen Elop, Microsoft executive vice president. The company will focus attention on the Lumia smartphones to hit both the low and high-end markets.

Recently, Microsoft has been more aggressive in pursuing a strategy to boost Windows Phone adoption, especially in the enterprise. The company unveiled Windows Phone 8.1 at Build 2014 and this week worked hard to hammer in the enterprise value for the Windows Phone platform at the Worldwide Partners Conference in Washington, D.C.

Moreover, with the primary focus now on Windows Phone, Microsoft's Android-based smartphone development will end and head toward maintenance mode.

As Microsoft bets on Windows Phone to capture the enterprise and consumer markets, the company must be picky on how it will proceed. Microsoft touts the number of OEMs that develop for Windows Phone, but IT professionals are cautious about how this strategy will pan out.

Microsoft has a lot of great OEM partners, said Brian Katz, director of mobile innovation at a large pharmaceutical company based in New Jersey. As Microsoft brings the OEMs back into the Windows Phone fold, they have to be careful as Nokia is known for its quality, he said.

Windows Phone strategy crystallizes

Now, Microsoft is emphasizing its commitment toward recruiting application developers for creating custom line of business applications and services to propel Windows Phone adoption into the enterprise.

"Truth of the matter is, whether you're an enterprise or not, apps matter," Katz said. "Windows Phone plays best in the Microsoft ecosystem right now, but they don't have enough enterprise apps."

The slow adoption for Windows Phone in the enterprise continues to be a sore thumb for Microsoft, which has not enjoyed the same organic growth for its platform compared with Apple’s  iPhone or Google’s Android smartphones. It places a distant third in the smartphone market against  iPhones and Android devices.

"A big portion of this layoff is re-architecting the company for mobile from within," said Chris Hazelton, research director, enterprise mobility for 451 Research, based in New York.

Feature phones are a dying business and Microsoft is saying they cannot ride it to the bottom, Hazelton said.

In 451 Research's quarterly survey, 9% to 12% of IT respondents said they will purchase a corporate-liable Windows Phone.

It is unclear whether Nokia's Windows RT tablet, the Lumia 2520 will survive. Microsoft promotes its own Surface product line and is gaining some slight traction and attention with the Surface Pro 3

Meanwhile, Microsoft will incur pre-tax charges of $1.1 billion to $1.6 billion over the next fiscal year. This will consist of $750 million to $800 million for severance and benefit payouts and $350 million to $800 million of asset-related charges, the company said. Microsoft intends to discuss more details in its 2014 fiscal year-end call next week.

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