News

Microsoft Announces Major Writedown, Layoffs in Phone Restructuring

• By Kurt Mackie
• May 25, 2016

Microsoft's plans to downsize its mobile business will result in significant job cuts and a near $1 billion writedown, the company announced Wednesday.

The company said it will cut 1,850 jobs associated with its Windows Phone hardware business and write off $950 million by July 2017. Most (1,350) of the job cuts will happen at Microsoft Mobile Oy in Finland. However, there will be a further 500 jobs eliminated worldwide. About $200 million of the write-off total will be associated with severance payments to former employees, Microsoft's announcement explained.

Completion of this plan is targeted for July 2017, which is the end of the company's next fiscal calendar year. Details will get explained in Microsoft's Form 10-K associated with its Q4 earnings results, which will get published on July 19, 2016.

Mobile Cuts
The grim news for Microsoft employees on the Windows Phone side of the house is part of a recent trend. Earlier this month, Microsoft announced the sale of its entry-level phone hardware assets to FIH Mobile Ltd. and HMD Global for $350 million. About 4,500 Microsoft employees would have the option of joining the acquiring companies, Microsoft announced at that time.

Last year, Microsoft announced a $7.6 billion write off associated with its Nokia acquisition, with plans to lay off 7,800 employees at that time. The majority of Microsoft's 18,000 job eliminations announced in 2014 were associated with its Nokia factories, totaling 12,500 planned cuts.

Microsoft's mobile progress hasn't been too good to date. For instance, Gartner reported this month that the market share of Windows Phone and Windows 10 Mobile had slipped in Q1 to less than 1 percent.

In April, a leaked memo from Terry Myerson, head of Microsoft's Windows and Devices Group, offered assurances that Microsoft was committed to future "support" for its smartphone platform, perhaps to assuage nervous Windows Phone hardware partners. Myerson said at that time that Microsoft was committed to Windows 10 Mobile and was developing its "next generation products."

New Myerson Memo
Myerson further explained this concept in a new memo to Microsoft employees, which was published Wednesday by The Verge and other media outlets. In that memo, Myerson characterized Microsoft's smartphone progress to date as being "limited to companies valuing our commitment to security, manageability, and Continuum, and with consumers who value the same."

Continuum is Microsoft's Windows 10 capability that transitions a mobile device to work more like a PC, allowing users to tap a desktop PC's keyboard and mouse, for instance. Myerson said that, in the wake of this latest restructuring, Microsoft had not changed its Windows strategy. That strategy is still focused on universal apps, support for "current Lumia and OEM partner phones" and the development of "great new devices," as well as a commitment to the "device, platform and service combination" at Microsoft.

Possibly Myerson was alluding to a so-called "Surface Phone" device, targeting the high end of the mobile market, with his talk about "great new devices." However, the Surface Phone is just a rumor.

According to Myerson's memo, Microsoft will embrace other mobile platform with its "productivity services, device management services, and development tools." In general, Myerson described the company as getting "more focused" with its restructuring, adding that "we're scaling back, but we're not out" of the mobile smartphone business.

For greater perspective on Microsoft's mobile evolution and where they might be heading, see this article.