Microsoft Laying Off 7,800, Taking $7.6B Charge on Phone Business

Microsoft's foray into the phone hardware business, while not abandoned, is being substantially scaled back.

The company announced Wednesday that it plans a major restructuring in its phone hardware business. Microsoft will cut 7,800 positions, primarily from the phone business, in a move that the company said would be "substantially" complete by the end of this calendar year and fully complete by the end of the fiscal year, June 30, 2016.

Microsoft also announced a $7.6 billion impairment change against the value of the assets associated with the acquisition of the Nokia Devices and Services division. In effect, that charge will be 5 percent higher than the reported $7.2 billion value of the original deal, which closed in April 2014. Microsoft will also take a restructuring charge of $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," Microsoft CEO Satya Nadella said in a company e-mail Wednesday morning.

"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," Nadella wrote.

There was no indication that the moves would affect Microsoft's other first-party hardware, such as Surface, Xbox, HoloLens or Band.

The cuts come in addition to the 18,000 layoffs Microsoft announced last year, although some observers have noted that those layoffs seem to have resulted in a smaller actual reduction of headcount, from about 128,000 in June 2014 to roughly 118,000 as of this March.

Microsoft picked up about 25,000 employees in the Nokia acquisition.

The layoff and write-down news follows Nadella's companywide e-mail last month that warned of "tough choices in areas where things are not working."

Microsoft has struggled to gain share in the critical smartphone market both before and after the Nokia acquisition. Stephen Elop, the onetime Microsoft senior executive who went to Nokia to become CEO and then returned to Microsoft in the acquisition to run the hardware business, was among the senior executives whose departures were announced in an executive reorganization last month.

Elop's devices group was combined with the operating systems group to create a Windows and Devices Group (WDG) to be run by Terry Myerson. Despite the moves on the hardware side, mobile devices remain a key piece of one of the design pillars of Windows 10 -- being an operating system for which developers can write once and target a range of form factors, from smartphone to tablet to PC to conference room screen.

Microsoft will release more information about the changes in its fourth-quarter earnings announcement July 21 and in the company's 2015 Annual Report and Form 10-K. Microsoft's Fiscal Year 2016 started last week.

About the Author

Scott Bekker is editor in chief of Redmond Channel Partner magazine.