The Microsoft cuts are here and they are deeper than expected. Per the Microsoft press release, the move will entail:
” … the elimination of up to 18,000 positions over the next year. Of the total, about 12,500 professional and factory positions will be eliminated through synergies and strategic alignment of the Nokia Devices and Services business acquired by Microsoft on April 25.”
That is an even deeper cut than the 10 percent expected by some insiders; post-Nokia, Microsoft had about 125,000 employees. And this is much larger than the roughly 5,800 people cut back in 2009. To cover these costs, the company said it expects to take a pre-tax charge of $1.1 billion to $1.6 billion over the next four quarters, including $750 million to $800 million to cover severance and benefits for affected employees.
Here’s Nadella’s email to employees. And in another corporate email, Executive Vice President Stephen Elop noted a shift in Microsoft’s phone-and-mobile strategy. Elop wrote that at Microsoft, the phone business is part of a bigger strategy, not an end in itself as it was for Nokia.
“We will be particularly focused on making the market for Windows Phone. In the near term, we plan to drive Windows Phone volume by targeting the more affordable smartphone segments, which are the fastest growing segments of the market, with Lumia. In addition to the portfolio already planned, we plan 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.”
The company will consolidate what were two business units — for Smart Devices and Mobile Phones units — into one unit, he said. That combined group will be led by Jo Harlow and will be responsible for Lumia products, “the transition of select future Nokia X products to Lumia and for the ongoing operation of the first phone business,” he wrote
Microsoft, as reported, needs to slim down after its $7.17 billion buyout of Nokia and to focus on key “CloudOS” and productivity tools across devices.
Speculation has been off the charts for more than a month — with one recently departed employee saying that insiders immediately scrutinized and worried about Nadella’s recent marching orders memo and the diagram depicting Microsoft’s “core” (shown below).
“The amount of texts and emails this morning has been shocking,” he said via email after the memo went out. “Apparently this has been in the works for over 2 months. And if your product group isn’t in that circle he drew, it is likely done … and ‘combined engineering’ everywhere — which is a good thing. No separate test teams [going forward].”
Microsoft will announce its fourth quarter earnings July 22 and it made sense to get this news out before that.
This story was updated several times Thursday morning as more details became available.