Redmond is cleaning house. Microsoft just announced plans to restructure its phone hardware business to better focus and align resources. Part of that alignment translates to layoffs. Microsoft will cut up to 7,800 positions, primarily in the phone business.
The result: an impairment charge of about $7.6 billion related to assets connected to its Nokia Devices and Services business acquisition. That’s on top of a restructuring charge of between $750 million and $850 million.
“We are moving from a strategy to grow a standalone phone business to a strategy to grow and create a vibrant Windows ecosystem including our first-party device family,” Microsoft CEO Satya Nadella (pictured) said in a letter to Microsoft employees outlining the plan. “In the near-term, we’ll run a more effective and focused phone portfolio while retaining capability for long-term reinvention in mobility.”
An Expensive Mistake?
After acquiring Nokia’s handset business for $7.5 billion in 2014, Microsoft almost immediately moved to rebrand the Nokia product line. Microsoft closed on the buy of Nokia’s Smart Devices business unit, including the Lumia brand and products, in April then changed the name from Nokia Lumia to Microsoft Lumia in October.
A reorganization after a merger is not unusual. But is this mass reorganization a sign the merger failed? We asked Jeff Kagan, an independent technology analyst, for his thoughts on the reorg.
“When Microsoft initially made the move to acquire Nokia, the reasoning made sense, but the chances for success were weak at best,” said Kagan. “Microsoft needed to update its operating system and get into mobile.”
Nokia was a leader in plain old wireless handsets until the Apple iPhone and Google Android phones hit the market, then the company essentially crashed and burned, he said. Now this.
“Moving into wireless successfully is proving to be quite difficult except for the industry leaders like Apple and Google on the handset side and AT&T Mobility, Verizon Wireless, Sprint and T-Mobile on the network side,” Kagan said. “This was a very expensive mistake both in terms of cash and time for Microsoft.”
Where Does Microsoft Go From Here?
Nadella does not seem to be squeamish about reorganizations. Just last month, he announced an “alignment of engineering teams to strategy,” that led to a significant shakeup in its leadership ranks.
That reorganization aimed to drive engineering alignment against the company’s core ambitions: reinventing productivity and business processes; building the intelligent cloud platform; and creating more personal computing.
On top of that, Redmond is also working to transfer its imagery acquisition operations to Uber and shift its display advertising business to AOL so the company can invest more in search as its core advertising technology and service.
But the question remains, where does Microsoft’s phone business go from here?
“Windows 10 may be Microsoft’s first real chance at growth in many years,” Kagan said. “It will also work with mobile and [I] will be very interested to see if they can pull all the pieces together going forward. Stay tuned. As for this Nokia deal, I believe it was a big waste of time and money for Microsoft.”
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