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Microsoft is laying off up to 1,850 workers in its smartphone hardware business as it moves to cut its losses, shrink its sales focus and sell smartphones to enterprise customers who want specialized devices with additional security and manageability features.
The company announced the layoffs on May 25, saying in a statement that it will “streamline” its smartphone hardware business and take an impairment and restructuring charge of about $950 million, including about $200 million for severance payments, in the fourth quarter.
“We are focusing our phone efforts where we have differentiation—with enterprises that value security, manageability and our Continuum capability, and consumers who value the same,” Microsoft CEO Satya Nadella said in a statement. “We will continue to innovate across devices and on our cloud services across all mobile platforms.”
About 1,350 of the layoffs will come at Microsoft Mobile Oy in Finland, formerly Nokia, while another 500 will be spread around the world, the company said. Employees working for Microsoft Oy, a separate Microsoft sales subsidiary based in Espoo, Finland, are not included in the layoffs.
More information about the head count cuts and smartphone business changes will be unveiled in Microsoft’s fourth-quarter earnings announcement on July 19, the company said.
Despite the layoffs and smartphone line changes, the company is not getting completely out of the smartphone business, a Microsoft executive told employees in an internal email reported by The Wall Street Journal on May 25.
Microsoft will continue to “develop great new devices,” Terry Myerson, executive vice president of Microsoft’s Windows and Devices Group, wrote to employees, The Journal reported. “[We’re] scaling back, but we’re not out!” wrote Myerson.
The Microsoft and Nokia brands have been tied together for years, first because Nokia was a Microsoft premier Windows Phone partner for a long time, and later when Nokia sold its smartphone division to Microsoft in April 2014 for $7.1 billion.
Since the acquisition, Microsoft’s Lumia smartphone line has been having problems. The Lumia line of Windows-based phones, despite being generally well-received, has barely made a dent in unseating Android- and iOS-based smartphones from the top of the smartphone market.
In July 2015, Microsoft announced the layoff of about 7,800 employees, mostly from its mobile phone business, after the staff reduction of some 18,000 mobile phone workers in 2014.
Several IT analysts told eWEEK that Microsoft’s latest actions involving the former Nokia operations were seemingly inevitable.
“I’ve been saying for quite a while now that the best and most likely outcome for Microsoft’s phone business was to refocus around the business market and give up on the consumer market, and it looks like that’s what they’re doing now,” said Jan Dawson, chief analyst at Jackdaw Research. “I’m not convinced that Continuum is the answer, but they’ve demonstrated with Surface that they’re able to mine some new niches in other markets and they might be able to do the same thing with business-centric phones.”
At the same time, though, this isn’t going to be an easy path for Microsoft, either, said Dawson. “The enterprise market has come a long way, and both Apple and Samsung are now very good in their support for enterprise devices, so Microsoft isn’t just going to come in and clean up, despite the collapse of BlackBerry over the last few years. At best, Microsoft can hope for a niche within a niche here. The question is whether it can build a sustainable business at that scale.”
Microsoft Laying Off 1,850 as it Shrinks its Smartphone Operations
Rob Enderle, principal analyst at Enderle Group, said the latest layoff move is “largely the result of a failed strategy to accurately estimate the cost of entering a market and too slowly escalating the investment chase … and executing badly. Had Microsoft taken their entire investment and moved it up front they likely would own this market today.”
For Microsoft in the future, “their only real path is to pivot the market much like Apple did with the iPhone” and head in a bold direction, said Enderle. “With Motorola bringing back the flip phone there is a possibility that a Continuum-based flip phone with accessories, like a tablet, could be seen as a better solution than today’s smartphone, but they’d have to execute far better than they have so far.”
Maribel Lopez, principal analyst at Lopez Research, told eWEEK that “it’s obvious that Microsoft won’t be a longstanding smartphone provider” in the future, based on the latest round of cutbacks in its mobile phone business. “I have to wonder how many times they can lay Nokia people off. It must be down to the base crew by now.”
Another analyst, Tuong H. Nguyen of Gartner, told eWEEK that Microsoft’s smartphone division layoffs seem “like a continuation of the story that’s been unfolding for a while now.” The cuts are the result of poor sales, he said. In the first quarter of this year, Windows Phone had only a 0.7 percent market share of the global smartphone market, and it’s been at less than two percent for more than a year, said Nguyen.
“Given their overall limited market share in the phone market, it’s difficult to impossible for them to gain any significant traction in phones and other licensees haven’t done much to improve this position,” he said. “That having been said, there’s still the Continuum/bigger Windows story – having the platform available across different device types. Therefore, they can’t just outright give up on mobile, nor do I think they will.”
Earlier in May, Microsoft sold its feature phone assets to Foxconn Technology Group’s FIH Mobile Ltd. (FIH) for $350 million, according to an eWEEK report. That deal was related to a 10-year licensing deal that will allow Nokia mobile phones, smartphones and tablets to be built and sold around the world by a newly formed Finnish company, HMD Global.