Attempting to fend off a culture that dwelled too long on tradition and replace it with one far more aggressive, Microsoft Corp.’s chief executive announced sweeping layoffs on Thursday that will affect workers worldwide.
Anlaysts were surprised by the number — up to 18,000 job cuts over the next year — but not by the move.
“They had to shed the notion that it was fortress Microsoft, where everything was Windows first,” said Merv Adrian, a vice president of research at Gartner Inc. “They are moving from a company that has historically played catch-up for the last decade into a company that wants to go back into that leadership role that they were in long before, and that means a differently shaped Microsoft.”
The biggest and broadest layoffs in the company’s 39-year history amount to about a 14% overall reduction — including a nearly 50% reduction at Nokia’s mobile phone unit and a 5% reduction elsewhere. Microsoft acquired the Nokia division in April, a deal agreed to before Satya Nadella became Microsoft’s third-ever chief executive, replacing Steve Ballmer. Ballmer, now retired from Microsoft, has put in a $2-billion bid to buy the Los Angeles Clippers.
Nearly 13,000 job cuts will begin immediately, including about 1,350 losses at Microsoft headquarters in the Seattle area. More will come from Nokia’s engineering office in San Diego, its factory in Hungary and its offices in Finland and Beijing. Microsoft has three offices in the Los Angeles region, where employee prospects are uncertain. Later Thursday, Microsoft said it was shutting down Los Angeles-based Xbox Entertainment Studios, a division that had been focused on building original entertainment programming for the Xbox.
Microsoft shares were up about 0.8% to $44.43 just after 9 a.m. Pacific, touching their highest level since year 2000, as investors and analysts applauded what they saw as a much-needed removal of middle managers.
“There’s hope for a faster, nimbler Microsoft,” said Colin Gillis, senior technology analyst at BGC Partners. “The idea is to reduce the layers of management vertically and horizontally, so you can speed things up.”
In a note to clients, FBR Capital Market analysts Daniel Ives and James Moore said that while the cuts were “painful” for employees, they were certainly necessary considering all the duplication Nokia brought in the door.
“Microsoft needs to be a ‘leaner and meaner’ technology giant over the coming years in order to strike the right balance of growth and profitability around its cloud and mobile endeavors,” they said.
Microsoft, whose Windows operating system still powers most traditional computers, has fallen far behind Google, Apple, and Amazon in smartphones, tablets and servers — the areas of computing showing the greatest growth.
Nadella in recent weeks has urged the company to focus less on trying to sell “devices and services.” Instead, he’s said, Microsoft should do more to make people’s more productive through "ambitious" changes, such as, for one small example, automatic translation on the messaging app Skype.
“Having a clear focus is the start of the journey, not the end,” Satella told employees Thursday. “The more difficult steps are creating the organization and culture to bring our ambitions to life.”
Company officials said Thursday they were committed to bringing Windows to more smartphones. Nokia, which had been making some phones powered by Google’s Android operating system, will now shift to Windows. The Nokia unit also plans to scale back production of its own devices or move the work from Europe to cheaper markets such as China, Vietnam and Brazil.
The purchase of the struggling Nokia unit left some analysts scratching their heads and predicting that it would drag Microsoft earnings down in the coming months. But the significant jobs cut should reduce those concerns as cost cuts boost profit margins, Adrian said.
The job cuts will trigger a charge of $1.1 billion to $1.6 billion on the company's books to cover severance and benefit costs during the next year, Microsoft said.
Microsoft's only previous mass layoff came in 2009, when the company announced that a “once-in-a-lifetime set of economic conditions” had forced it to cut 5,000 employees, about 6% of the workforce at the time. Since then many of the industry's original technology giants, including Intel, Hewlett-Packard and IBM, have announced reductions in their workforces to keep pace with the innovation coming out of Google, Amazon and start-ups.
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