Redmond, Wash. – Microsoft is slashing its cellphone business as part of a larger restructuring that will cut up to 7,800 positions from the company’s roster of more than 118,000 people.
The reductions will come primarily in the phone business, which was acquired from Nokia in early 2014 but announced in 2013. At the time, the company said it would purchase substantially all of Nokia’s devices and services business to build up the Windows Phone smartphone share, target the affordable mobile devices market, and advance Microsoft’s transformation.
The latest cuts follow last year’s reduction of 18,000 people, or 14 per cent of Microsoft’s full-time workforce. That layoff was the largest in the company’s history.
“The future prospects for the phone hardware segment are below original expectations,” the company said.
The company will continue to make Windows smartphones as well as non-smart feature phones, which the company does not bring into the U.S. The phone group also does cross-platform work focused around partnerships that put Microsoft apps on other mobile OSs, such as Office for iOS and Android.
Microsoft CEO Satya Nadella said the personnel reductions will take place over the next several months. The purchase of Nokia was engineered by his predecessor, Steve Ballmer.
In an email to employees, Nadella contended that he is “committed to our first-party devices, including phones,” but he said the company must “focus our phone efforts in the near term while driving reinvention.” He said Microsoft is “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.”
In phones, the company will “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,” Nadella said. The company will “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,” he said.
In the longer term, he continued, “Microsoft devices will spark innovation, create new categories and generate opportunity for the Windows ecosystem more broadly. Our reinvention will be centered on creating mobility of experiences across the entire device family, including phones.”
More information about the restructuring will be provided in Microsoft’s fourth-quarter earnings announcement on July 21 and in the company’s 2015 Annual Report on Form 10-K.
The company will record an impairment charge of approximately $7.6 billion related to its cellphone segment assets and goodwill plus a restructuring charge of around $750 million to $850 million.