By Jay Greene
Microsoft Corp.'s decision to further dismantle its shrunken
mobile phone operations leaves the software giant betting that it
can revive its fortunes in a critical market segment by focusing on
the one area where it still may have strength: securing and
managing mobile devices on corporate networks.
The company on Wednesday said it would lay off 1,850 workers and
take a charge of about $950 million in its smartphone hardware
business. Combined with a previous write-off last year, it has now
taken charges that slightly exceed the $9.4 billion Microsoft's
previous chief executive, Steve Ballmer, spent in 2014 to acquire
Nokia Corp.'s handset business, a move intended to secure its
position in the phone market.
That capitulation reflects the conundrum facing Mr. Ballmer's
successor, Satya Nadella, who took over two years ago, as he runs
out of options to bolster Microsoft's standing in mobile
technology. His new strategy aims to help information-technology
managers cope with the increasingly central position of smartphones
in corporate networks. The company is betting that corporate
customers will want to use Microsoft's technology to lock down and
control devices on their networks.
In a statement, Mr. Nadella also touted its Continuum feature,
which enables a smartphone running Windows 10 to function as a
surrogate PC when connected to a monitor and keyboard.
Microsoft must establish its Windows operating system on a
substantial portion of smartphones or accept a diminished presence
in the technology landscape, where mobile devices outnumber
personal computers -- and it may not get another chance, said
Forrester Research Inc. analyst Julia Ask.
"It's their last play," Ms. Ask said. "They've got a tough road
ahead of them."
The path includes both hardware and software. Windows 10, the
latest version of Microsoft's flagship operating system, is
designed to run on smartphones as well as PCs and other devices.
Microsoft currently sells three smartphones under its Lumia brand,
and on Wednesday said it would continue to support those
models.
"[We're] scaling back, but we're not out," Terry Myerson,
executive vice president of Microsoft's Windows and Devices Group,
wrote in an email to employees on Wednesday.
However, it would be hard for Microsoft to be much less in the
phone business. Research firm Gartner Inc. last week reported that
sales of smartphones running various versions of Microsoft's
Windows software amounted to 0.7% of the market in the first
quarter of 2016. A year earlier, Windows' share of sales came to
2.5%.
The streamlined strategy is a sharp departure from the approach
of Mr. Ballmer, who focused first on a phone operating system for
the consumer market, then on one for the business market, with
little success. His "devices and services" strategy required
Microsoft to build the gadgets that run the company's software to
better compete with Apple Inc. and Alphabet Inc.'s Google, which
dominate the mobile-phone market. He bought the Nokia handset
business in 2014 to give Microsoft the muscle to distribute the
software on its own phones.
Mr. Nadella's strategy aims at a market where companies are
increasingly procuring phones for employees rather than letting
workers bring their own devices onto corporate networks, reversing
a trend known as BYOD, for bring your own device. According to
Forrester analyst Christian Kane, 32% of information workers
world-wide -- workers who use a computing device for work -- carry
two mobile phones. Of that group, 27% were issued a device with no
choice, and 19% had to choose from a company-approved list of
phones.
That niche could provide an opening for Microsoft, International
Data Corp. analyst John Delaney said.
"They are basically giving up on the consumer," Mr. Delaney
said. "It is the right strategy. It would have been good to have
done it a bit sooner."
Mr. Nadella is banking on Windows 10, the latest version of its
flagship operating system, to grow that business. Released last
summer, Windows 10 is the first version of the operating system
that can run on mobile phones and game consoles as well as personal
computers. The company is betting that the vast number of devices
running Windows 10 -- 300 million by the latest count -- will
persuade software developers to create the sort of apps that will
bring mobile customers to the company.
While it pursues that Windows-centric strategy, Microsoft is
also developing technology for rival mobile operating systems. It
offers its Office word-processing and spreadsheet software on
Apple's iOS, for example. Mr. Myerson in his email to employees
described that approach as "pragmatic."
The layoffs will hit hardest in Finland, Nokia's home, where
1,350 jobs will be cut, Microsoft said. The company said the
charges include about $200 million severance payments.
Microsoft plans to close the operations of Microsoft Mobile Oy,
the company's Finnish subsidiary that produces mobile devices,
according to a person familiar with Microsoft's plans. Microsoft
Oy, the Finnish sales and marketing subsidiary with around 270
employees, won't be part of the planned closing, the person said.
Microsoft also expects to maintain a limited number of research and
development teams in Finland, he said.
Microsoft's mobile phone struggles stretch back more than a
decade. It originally offered Windows Mobile, an operating system
for mobile phones aimed at business users, in 2003. But BlackBerry
Ltd., first, then Apple's iPhone and phones running Google's
Android operating system outpaced Microsoft. It shifted strategy in
2010, targeting consumers with the renamed Windows Phone software.
Microsoft acquired Nokia's handset business in hope of catching up,
which gave the software giant a hardware maker committed to using
its operating system. Nokia, once the global leader in mobile
phones, withered on Microsoft's watch.
"When I look back on our journey in mobility, we've done hard
work and had great ideas, but haven't always had the alignment
needed across the company to make an impact," Mr. Myerson wrote in
his email to employees.
--Matthias Verbergt contributed to this article.
Write to Jay Greene at Jay.Greene@wsj.com
(END) Dow Jones Newswires
May 26, 2016 02:48 ET (06:48 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Microsoft (NASDAQ:MSFT)
Historical Stock Chart
From Aug 2024 to Sep 2024
Microsoft (NASDAQ:MSFT)
Historical Stock Chart
From Sep 2023 to Sep 2024