Microsoft on Wednesday took a $7.6 billion haircut on its Nokia hardware assets and announced it will cut 7,800 jobs as it reorganises its ailing phone division.
The U.S. software giant said it wants to align its Nokia Devices and Services (NDS) business more closely with its core operations and narrow its focus to three customer segments: corporate users, value customers, and high-end consumers.
As has become the norm at Microsoft, the bad news was broken to staff in an email from CEO Satya Nadella.
"I am committed to our first-party devices including phones. However, we need to focus our phone efforts in the near term while driving reinvention. We are moving from a strategy to grow a standalone phone business to a strategy to grow and create a vibrant Windows ecosystem that includes our first-party device family," said Nadella.
"These changes…will result in the reduction of up to 7,800 positions globally, primarily in our phone business. We expect that the reductions will take place over the next several months," he said.
The reorganisation is expected to generate costs of $750 million-$850 million.
An impairment charge of $7.6 billion on assets related to NDS will be recorded. When Microsoft acquired Nokia’s phone business in September 2013 it paid $7 .2 billion.
The restructuring comes three weeks after the abrupt departure of devices chief and one-time Nokia CEO Stephen Elop as part of an executive shuffle.
Microsoft’s phone business will be subsumed by the newly-created Windows and Devices Group (WDG), which will fall under the remit of the company’s OS chief Terry Myerson.
Nadella will hope the reshuffle reverses the recent lacklustre performance of its phone business.
In the three months to 31 March, Microsoft sold 8.6 million Lumia devices, generating hardware revenue of $1.4 billion. In the Christmas quarter those figures were 10.5 million and $2.3 billion respectively. In the quarter ended 30 September, Microsoft sold 9.3 million Lumias, generating $2.6 billion in revenue.
"In the near term, we will run a more effective phone portfolio, with better products and speed to market given the recently formed Windows and Devices Group," said Nadella on Wednesday.
"We’ll bring business customers the best management, security and productivity experiences they need; value phone buyers the communications services they want; and Windows fans the flagship devices they’ll love," he continued.
The longer term is a little less clear cut, with Nadella proclaiming that Microsoft devices will "spark innovation," and "create new categories and generate opportunity for the Windows ecosystem more broadly."
This is the second time in 12 months that former Nokia employees have been culled en masse.
On 17 July 2014, Nadella confirmed Microsoft would make 18,000 staff redundant – the largest round of cuts in the company’s history. 12,500 were made at Nokia, representing nearly half the 30,000 employees who officially joined Microsoft when the Nokia acquisition closed in April that yea r.
"I don’t take changes in plans like these lightly, given that they affect the lives of people who have made an impact at Microsoft. We are deeply committed to helping our team members through these transitions," said Nadella in Wednesday’s email.
Microsoft expects to have made the bulk of the latest round of redundancies by the end of 2015.
The company said it will explain its plans in more detail during its fourth-quarter earnings announcement on 21 July.
