Microsoft Corp. said it will eliminate as many as 18,000 jobs, the largest round of cuts in its history, as Chief Executive Officer Satya Nadella integrates Nokia Oyj's handset unit and slims down the software maker.
The restructuring, amounting to about 14 percent of its workforce, includes 12,500 Nokia factory and professional positions -- half the number of employees added in the acquisition. At Microsoft, cuts will be in sales, marketing and engineering. The reductions are expected to be completed by June 30, 2015, and will result in a pretax charge of $1.1 billion to $1.6 billion, Microsoft said in a statement today.
Nadella, who took over from Steve Ballmer in February, is retooling the company's structure as it seeks to compete with nimbler rivals offering mobile and Internet-based software and services. He's also working to wring a promised $600 million in annual savings from Microsoft's Nokia deal, which added 25,000 workers in April, bringing the total to about 127,100.
"Microsoft needs to be a leaner tech giant over the coming years in order to strike the right balance of growth and profitability around its cloud and mobile endeavors," said Daniel Ives, an analyst at FBR Capital Markets & Co. who rates Microsoft stock the equivalent of a buy.
The company will start with 13,000 cuts today and the majority of eliminated workers will be notified in the next six months, Nadella said in an e-mail to employees. The company will also have fewer layers of management and will make changes to its outside vendor staff, he said.
"The first step to building the right organization for our ambitions is to realign our workforce," he wrote.
Last week, in his first mission statement, Nadella said the Redmond, Washington-based software maker needs to become more focused and efficient and requires changes to its engineering teams. He pledged updates on the new plans later this month, and said he would provide more details when the company reports earnings on July 22.
Microsoft investors are likely to view the cuts as a positive sign, illustrating that Nadella is trying to get costs and headcount under control and that he understands the challenges facing Microsoft, Ives said.
"We view this as another step in the right direction from the Street's perspective," he said. "Nadella is not wearing rose-colored glasses."
In appearances at company and technology events since he took the helm, Nadella has reiterated that the company's priorities are mobile and cloud products, as he works to shift Microsoft away from its longtime core business of software for personal computers. Nadella has signaled a desire to produce software for rival operating systems, like Apple Inc.'s iOS and Google Inc.'s Android, and has shuffled management in areas like marketing, business development and the Xbox game console.
While Microsoft has implemented smaller, intermittent job cuts in individual businesses -- for example, trimming a few hundred positions in advertising sales and marketing in 2012, and some marketing jobs across the company earlier that same year -- the 39-year-old company has only undertaken a companywide restructuring affecting thousands of workers once before, in 2009, at the start of the recession. Over the course of that year, the company cut 5,800 jobs, or about 5 percent of its workforce at the time.
When Microsoft agreed to acquire the Nokia's device unit in September, the software maker pledged $600 million in yearly cost savings in the 18 months after the deal closed. People with knowledge of the matter have said that honoring that commitment would probably involve job cuts in areas where the two companies overlapped.
Microsoft's engineering teams have traditionally been split between program managers, developers and testers. Now, with new cloud-based methods of building software, it often makes sense to have the developers test and fix bugs instead of a separate team of testers, Nadella said in an interview last week after releasing his memo. At the time, he declined to say whether the changes would result in job cuts.
As the technology industry increasingly shifts toward mobile computing and cloud-based services, other technology companies have also sought to keep up by streamlining and firing workers. Hewlett-Packard Co. in May disclosed 16,000 more job cuts after reporting an 11th straight quarter of declining sales, on top of 34,000 in staff reductions already announced. International Business Machines Corp. also started dismissing workers earlier this year as part of a $1 billion restructuring to help it adapt to the industry's changes.