MICROSOFT IN TOUGH
Tech giant plans to cut 7,800 jobs and write down $7.6 billion on its Nokia phone-handset unit,
SEATTLE— Microsoft plans to cut as many as 7,800 jobs and write down about $7.6 billion (U.S.) on its Nokia phone-handset unit, wiping out nearly all of the value of a business it acquired just 14 months ago.
The company also will record a restructuring charge of about $750 million to $850 million for the reorganization under chief executive officer Satya Nadella, the Redmond, Wash.,-based company said in a statement Wednesday. Microsoft had about 120,000 employees at the end of March, with about 1,800 in Canada.
The company will scale back its mobile ambitions from selling as many mobile devices as possible to concentrating on a narrower mission and set of customers to support the Windows device market, Nadella said in the statement. Microsoft spokesman Pete Wootton declined to elaborate.
The latest round of job cuts — which include 2,300 in Finland, where Nokia is based — come a year after Microsoft said it would let go of 18,000 employees, and less than two weeks after it announced plans to exit the web display advertising business. Since becoming CEO last year, Nadella has been acquiring mobile and cloud software makers, and cutting units not central to his strategy.
Last month, the 47-year-old executive made his biggest overhaul since taking over, revamping his leadership team to reflect a focus on three areas: personal computing, cloud platforms and productivity and business processes. As part of that announcement, Stephen Elop, the former CEO of the Nokia handset business that Microsoft bought last year, would step down.
Nadella’s restructuring plan includes sharply reducing the number of models the company will release, now about one a week when counting variations for geographical markets, a person familiar with the plans said. Instead, Microsoft will release one to two models a year in each of three categories, said the person, who asked not to be named as the plans aren’t public. The categories are business-focused devices, phones for customers looking for low-price smartphones, and highend devices for Windows fans.
The company will also exit loca- tions and carrier relationships where it hasn’t been successful, the person said.
Microsoft purchased Nokia’s handset business in April 2014 for $9.5 billion, including $1.5 billion in acquired cash. Seven months earlier, then-CEO Steve Ballmer announced plans to acquire the Finland-based unit as a last-ditch effort to gain users for Microsoft’s Windows Phone software, which had been languishing at less than 5 per cent of the market for mobile operating systems.
The deal hasn’t boosted Windows Phone’s market share, however, and Microsoft loses money on every phone it sells, even before account- ing for research and development and sales and marketing. Before Wednesday, the business had cut more than 10,000 jobs.
The writedown, to be taken in the company’s fiscal fourth quarter which ended June 30, is Microsoft’s biggest since a $6.2-billion charge in 2012 on the purchase of Internet ad company AQuantive Inc. It took five years for the company to record the AQuantive charge.
The purchase of the Nokia unit was controversial from the start. The company’s board, including thenchairman Bill Gates, rejected an earlier version of the acquisition, causing Ballmer to shout that if he didn’t get his way, he couldn’t serve as CEO, people briefed on the meeting said last year.
Several of Ballmer’s senior executives also didn’t support the proposed purchase. That group included Nadella, who at the time led the company’s server and cloud unit, the people said. Nadella later changed his mind. In March 2014, a month after being named CEO, Nadella said the deal was “the right move for Microsoft.”
Once the deal closed, matters didn’t get much better. Antitrust approval caused almost an eight-month wait for Microsoft to take over the unit, during which time its results continued to erode.
Microsoft said in an April filing that it had $5.24 billion in goodwill on its books related to the Nokia business as of March 31.
The company also said the unit didn’t meet sales volume or revenue goals and that margins were lower than expected.
“Given its recent performance, the Phone Hardware reporting unit is at an elevated risk of impairment,” the company said at the time.
Microsoft has gained less than 1 per cent since its last major round of job cuts a year ago. The shares are down 4.6 per cent this year.
In downsizing its mobile ambition, Microsoft will move away from selling as many mobile devices as possible to focusing on a narrower mission and set of customers