Microsoft to Streamline Smartphone Business, Cut 1,850 Workers--Update
May 25 2016 - 9:49AM
Dow Jones News
By Jay Greene
Microsoft Corp., struggling to restart its mobile strategy after
multiple misfires, early on Wednesday morning announced a further
step in dismantling the mobile-phone operations it acquired from
Nokia Corp.
The software giant will lay off 1,850 workers, taking an
impairment and restructuring charge of approximately $950 million,
the company said. It will record the charge in the current quarter
in its More Personal Computing segment.
Last summer, Microsoft wrote down $7.6 billion related to its
mobile-phone business and laid off 7,800 workers in those
operations.
Combined, the charges total a bit more than the $9.4 billion
Microsoft spent in 2014 to acquire Nokia Corp.'s handset
business.
The latest charge and layoffs follow the sale last week of
Microsoft's low-end phone business to FIH Mobile Ltd., a subsidiary
of Hon Hai/ Foxconn Technology Group, and HMD Global Oy for $350
million.
In an email to employees, Terry Myerson, executive vice
president of Microsoft's Windows and Devices Group, insisted that
the company isn't exiting the mobile-phone business. Microsoft,
which still makes three phones in its Lumia line, will continue to
"develop great new devices," Myerson wrote.
"[We're] scaling back, but we're not out!" Mr. Myerson
wrote.
It would be difficult for Microsoft to be less in the mobile
phone business that it currently is, though. The market 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 company intends to focus its mobile-phone efforts in areas
where the company has "differentiation," Microsoft Chief Executive
Satya Nadella said in a statement. That includes businesses that
want to use Microsoft's technology to manage and secure devices on
their corporate networks. Mr. Nadella also touted the company's
Continuum feature, which enables a smartphone running Windows 10 to
function as a surrogate PC when connected a video monitor and
keyboard.
Increasingly, companies are procuring phones for employees
rather than letting workers bring their own devices onto corporate
networks, said International Data Corp. analyst John Delaney. In
Europe, where Mr. Delaney is based, about a third of all companies
now offer employer-owned mobile phones to employees.
The strategy allows those companies to better manage the devices
on their corporate networks. That could provide an opening for
Microsoft, Mr. 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."
Microsoft 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 convince 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 Inc.'s iPhone and phones running Alphabet
Inc.'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. But 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 25, 2016 09:34 ET (13:34 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Nokia (NYSE:NOK)
Historical Stock Chart
From Aug 2024 to Sep 2024
Nokia (NYSE:NOK)
Historical Stock Chart
From Sep 2023 to Sep 2024