Microsoft announced July 17 that over the next year, the company plans to eliminate 18,000 jobs, or roughly 14 percent of the estimated 127,000 workers it employs worldwide. The majority of those positions are from the company’s recently acquired Nokia handset business.
Stephen Elop, former Nokia CEO and current executive vice president of Microsoft’s Devices Group, said in a statement that the Microsoft-Nokia integration process “would result in an estimated reduction of 12,500 factory direct and professional employees over the next year.” Part of the process includes consolidating the Smart Devices and Mobile Phones business units into a single phone business unit headed by Jo Harlow, a former Nokia executive in charge of Smart Devices.
Elop revealed that Microsoft plans to “ramp down engineering work” in Nokia’s research and development facility in Oulu, Finland, as indicated by earlier reports. The site employs 500.
“Our phone engineering efforts are expected to be concentrated in Salo, Finland, (for future, high-end Lumia products) and Tampere, Finland, (for more affordable devices),” he added.
Nokia X, a line of Android-supporting smartphones from the Windows Phone maker, will hew closer to Microsoft’s own smartphone OS. CEO Satya Nadella said in a statement that his company plans “to shift select Nokia X product designs to become Lumia products running Windows.”
Engineering work will also wind down at the Beijing and San Diego sites, although they “will continue to have supporting roles,” said Elop. The offices at Espoo, Finland, and Lund, Sweden, will continue to focus on software development.
Phone production will be largely concentrated in Hanoi, Vietnam, while “some production [will] continue in Beijing and Dongguan,” said Elop. Other Microsoft manufacturing and repair units will move to Manaus, Brazil, and Reynosa, Mexico. A “phased exit from Komaron, Hungary,” is also planned.
Other areas of Microsoft’s Devices unit won’t be as hard hit. Elop said that as a result of earlier changes, “there will be limited change for the Surface, Xbox hardware, PPI [Perceptive Pixel]/meetings or next-generation teams.”
Gartner Vice President Merv Adrian told eWEEK that the layoffs weren’t unexpected in the wake of the Nokia acquisition. “Obviously, there are redundancies,” he said.
Adrian described the cuts as “healthy and appropriate,” as Microsoft aligns its resources in pursuit of growth areas. “Microsoft is not cutting [jobs] because it’s losing money,” he said. “They’re the No. 2 cloud infrastructure as a service provider,” reminded Adrian. Microsoft also secured the No. 2 spot in the database management system (DBMS) market.
In a July 17 email to staffers, Nadella pledged to conduct the workforce reduction “in the most thoughtful and transparent way possible.” Microsoft is offering severance to all affected employees and “job transition help in many locations,” he said.
All told, Microsoft expects to take a restructuring charge of $1.1 billion to $1.6 billion over the next four quarters. The costs include $750 million to $800 million in severance and benefits, along with “$350 million to $800 million in asset-related charges,” according to the company. Shares in the company (MSFT) jumped nearly 3 percent to $45.71 after the news, a 52-week high.
Microsoft forecast that the bulk of the layoffs will occur by Dec. 31, 2014. By June 30, 2015, the company expects the process to be complete.
The announcement follows a July 10 memo from Nadella, signaling big changes at the company. “Nothing is off the table,” he wrote, suggesting that a shake-up was in the works as the company reorganizes for the post-PC era.
Editor’s Note: This story has been updated with a response to the Microsoft layoffs by Gartner Vice President Merv Adrian.