Microsoft cuts 7,800 jobs with plans to ‘restructure’ its mobile phone business

Three weeks after announcing a major executive shake-up, Microsoft has revealed another round of restructuring that will lead to “up to” 7,800 job cuts, “primarily in the phone business,” and plans to “restructure the company’s phone hardware business to focus and align resources.”

Today’s news may not be entirely surprising, given that Stephen Elop, the former head of Nokia who joined Microsoft as an executive vice president following the acquisition of its devices and services division last year, “retired” from the company a few weeks back. Indeed, Microsoft and Windows Phone have had a torrid time in a smartphone space dominated by Apple’s iOS and Google’s Android, so a refocus of efforts has probably been a long time coming.

The executive restructuring back in June saw the Devices and Services business unit that Elop headed up rebranded as the “Windows and Devices Group” (WDG), pulling the engineering facet of its Operating Systems Group and Microsoft Devices Group (MDG) under a single roof. This is now led by Terry Myerson, who was formerly vice president of the Operating Systems arm. So in effect, Microsoft merged its software and hardware divisions, a move designed to create a greater synergy between its hardware and software (Windows).

Alongside today’s news, Microsoft says it’s writing off the $7.6 billion it paid to acquire Nokia’s phone division, adding that there will be a restructuring charge of “approximately $750 million to $850 million.”

“We are moving from a strategy to grow a standalone phone business, to a strategy to grow and create a vibrant Windows ecosystem including our first-party device family,” said Microsoft CEO Satya Nadella in an email to employees. “In the near-term, we’ll run a more effective and focused phone portfolio while retaining capability for long-term reinvention in mobility.”

With Windows 10 scheduled to launch at the end of July, Nadella is acutely aware of the need to guide Microsoft back onto the right track, and a return to its roots as a software company is key. Today’s news doesn’t spell the end for Microsoft’s foray into mobile phone hardware, but it will likely mean a significant “narrowing” of its range of devices. Indeed, a “more effective and focused phone portfolio” could mean that it will offer a handful of flagship devices and ditch the plethora of forgettable low- to mid-end phones that have emerged from Nokia/Microsoft in recent times.

“I am committed to our first-party devices including phones,” says Nadella. “However, we need to focus our phone efforts in the near term while driving reinvention.”

Nadella’s email to Microsoft employees can be read in full below.

Team,

Over the past few weeks, I’ve shared with you our mission, strategy, structure and culture. Today, I want to discuss our plans to focus our talent and investments in areas where we have differentiation and potential for growth, as well as how we’ll partner to drive better scale and results. In all we do, we will take a long-term view and build deep technical capability that allows us to innovate in the future.

With that context, I want to update you on decisions impacting our phone business and share more on last week’s mapping and display advertising announcements.

We anticipate that these changes, in addition to other headcount alignment 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.

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.

Phones. Today, we announced a fundamental restructuring of our phone business. As a result, the company will take an impairment charge of approximately $7.6 billion related to assets associated with the acquisition of the Nokia Devices and Services business in addition to a restructuring charge of approximately $750 million to $850 million.

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.

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. We plan to narrow our focus to three customer segments where we can make unique contributions and where we can differentiate through the combination of our hardware and software. 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.

In the longer term, Microsoft devices will spark innovation, create new categories and generate opportunity for the Windows ecosystem more broadly. Our reinvention will be centered on creating mobility of experiences across the entire device family including phones.

Mapping. Last week, we announced changes to our mapping business and transferred some of our imagery acquisition operations to Uber. We will continue to source base mapping data and imagery from partners. This allows us to focus our efforts on delivering great map products such as Bing Maps, Maps app for Windows and our Bing Maps for Enterprise APIs.

Advertising. We also announced our decision to sharpen our focus in advertising platform technology and concentrate on search, while we partner with AOL and AppNexus for display. Bing will now power search and search advertising across the AOL portfolio of sites, in addition to the partnerships we already have with Yahoo!, Amazon and Apple. Concentrating on search will help us further accelerate the progress we’ve been making over the past six years. Last year Bing grew to 20 percent query share in the U.S. while growing our search advertising revenue 28 percent over the past 12 months. We view search technology as core to our efforts spanning Bing.com, Cortana, Office 365, Windows 10 and Azure services.

I deeply appreciate all of the ideas and hard work of everyone involved in these businesses, and I want to reiterate my commitment to helping each individual impacted.

I know many of you have questions about these changes. I will host an employee Q&A tomorrow to share more, and I hope you can join me.

Satya