Microsoft Confirms It Will Lay Off 18,000 Employees

Confirming recent rumors, Microsoft on Thursday announced it will undergo the most extensive round of layoffs in its history, with the newly acquired Nokia unit taking the brunt of the cuts.

The layoffs will reduce Microsoft's workforce by 18,000 employees, according to the announcement -- a much higher number than analysts had expected. Over two-thirds of the cuts (12,500) will come from those working in the Nokia factories. The rest of the cuts will come from other parts of the company, and will be aimed at creating a flatter and more responsive organization.

Microsoft CEO Satya Nadella announced the job cuts one week after indicating in an internal memo that major organizational changes were in the works. The announcement also comes just one day after Nadella's keynote address at the Microsoft Worldwide Partner Conference (WPC), in which he reiterated that the company must change its culture and be easier to do business with it.

Since Microsoft announced its intent to acquire Nokia last year for $7.2 billion, critics were concerned it would be a drag on the company's earnings. Nadella clearly signaled he is moving to minimize its impact. In an e-mail to employees announcing the job cuts, Nadella said the larger-than-expected cuts -- 13,000 of which will take place over the next six months -- are the result of a plan to integrate Nokia's operations into Microsoft.

"We will realize the synergies to which we committed when we announced the acquisition last September," Nadella wrote. "The first-party phone portfolio will align to Microsoft's strategic direction. To win in the higher price tiers, we will focus on breakthrough innovation that expresses and enlivens Microsoft's digital work and digital life experiences. In addition, we plan to shift select Nokia X product designs to become Lumia products running Windows. This builds on our success in the affordable smartphone space and aligns with our focus on Windows Universal Apps."

Nadella also said Microsoft is looking to simplify the way employees work by creating a more agile structure that can move faster and make workers more accountable. 

"As part of modernizing our engineering processes the expectations we have from each of our disciplines will change," he said, noting there will be fewer layers of management to accelerate decision making.

"This includes flattening organizations and increasing the span of control of people managers," he added. "In addition, our business processes and support models will be more lean and efficient with greater trust between teams. The overall result of these changes will be more productive, impactful teams across Microsoft. These changes will affect both the Microsoft workforce and our vendor staff. Each organization is starting at different points and moving at different paces."

The layoffs don't mean Microsoft won't continue to hire in areas where the company needs further investment, he said.

Nadella said he would share more specific information on the technology investments Microsoft will make during its earnings call scheduled for July 22.

About the Author

Jeffrey Schwartz is editor of Redmond magazine and also covers cloud computing for Virtualization Review's Cloud Report. In addition, he writes the Channeling the Cloud column for Redmond Channel Partner. Follow him on Twitter @JeffreySchwartz.