More Job Cuts Signal Microsoft's Flee from the Phone Business
If today's announcement is any indication, Microsoft is on the way to throwing in the towel on its mobile phone business. The company said that it will be implementing significant job cuts in its devices division, to the tune of 1,850 jobs in addition to the 4,500 jobs that it said last week were going away.
The company also said last week that it was selling off its feature phone brand and design business to Finland-based HMD Mobile. Finland is where most of the job cuts will have an impact. That’s where Nokia, whose phone operations Microsoft bought two years ago, has always had its base. Microsoft anticipates that up to 1,350 job cuts will be at Microsoft Mobile Oy in Finland.
The cuts will also affect as many as 500 additional jobs globally. Employees working for Microsoft Oy, a separate Microsoft sales subsidiary based in Espoo, Finland, will keep their jobs for now.
Microsoft will record an impairment and restructuring charge of about $950 million, $200 million of which will go toward severance payments for the affected workers. Last year, Microsoft announced a $7.5 billion write-down having to do with the Nokia deal, demonstrating how quickly the deal soured.
Why Quit Now?
The tech giant has had repeated difficulty competing with the offerings of the two top dogs in mobile phones, Apple's iPhone and the many devices running Google's Android operating system. Phones running Microsoft's software now make up only a small portion of the overall market.
Independent technology analyst Jeff Kagan told us he was surprised by the announcement despite the fact that Microsoft has struggled in the wireless market.
"I expected them to keep trying," he said. "I look at Microsoft in wireless similar to Thomas Edison with the light bulb. He failed time and time again until he finally hit the right formula. That’s what I expected from Microsoft, to keep trying until finally, one day they may come up with success."
Shift in Focus
Microsoft CEO Satya Nadella said that the company will now focus its phone efforts where it can differentiate itself from competitors, namely with consumers and enterprises that value security, manageability and the company's Continuum capability that turns a smartphone running Windows 10 into a PC. Nadella said the company will continue to innovate across devices and on its cloud services across all mobile platforms.
However, Microsoft hasn’t backed off plans to bring out a new range of small mobile devices in the spring of 2017. For its part, Nokia plans to bring branded Android phones back via the companies that just bought those assets from Microsoft.
Kagan pointed out that even with a mobile market share of 4 percent or 5 percent, Microsoft was in better shape than many competitors who haven’t been able to break even. But he speculated that Microsoft’s reputation among consumers might finally be coming home to roost.
"They have never been the company users liked," Kagan said. "Their abusive way of dealing with the marketplace shows they don’t really understand the business environment. They succeeded until now because they were the only place to turn. However as time passes, and customers have more choices, Microsoft may continue to lose market share."