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Microsoft writes off US$7.6B, admits failure of Nokia acquisition

Gregg Keizer | July 9, 2015
'Monumental mistake' by former CEO Steve Ballmer comes home to roost.

Along with the write-off, Microsoft announced it would lay off about 7,800 employees, most of them working in its device division, specifically the phone group. Those layoffs, as well as other restructuring charges, will cost the company another $750 million to $850 million, Microsoft said. The layoffs will be in addition to the 18,000 workers Microsoft cut loose last year, the company's largest-ever reduction.

When the layoffs wrap up, Microsoft will have retained just one out of every five former Nokia employees it inherited, Dawson calculated.

Nadella tried to explain the decision in his email to the troops.

"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," Nadella said. "In the near-term, we'll run a more effective and focused phone portfolio while retaining capability for long-term reinvention in mobility."

Gold interpreted that as a vastly scaled-back smartphone business, with fewer models, that would likely resemble the niche strategy Microsoft has pursued with its Surface line of tablets-cum-notebooks, especially the Surface Pro 3. "If Microsoft wants to do something unique for business, that's fine, that's what he's pointing at," said Gold.

Dawson agreed that Microsoft will probably reduce the number of different Lumia models, but read Nadella's comment differently. "I would expect them to pare the number of devices, but it doesn't sound like they're abandoning its strategy of trying to appeal to a broad swath of consumers. They'll have a high-end [model], low-end [models]," he said.

Nor did he see any logic to focusing, if that's what Microsoft did, on business customers, although years ago many analysts believed the firm would, in fact, cater to its best customers, enterprises, with its smartphones. "The fact is that business users are just the same as anyone else," Dawson said. "They want phones they like to use, that allow them to do not just work but personal stuff, too."

Microsoft said that the layoffs and restructuring, including the incurred costs, would be substantially completed by the end of the year, and wrapped up by the end of Microsoft's fiscal year, or by June 30, 2016.

The company will release more information about the write-off and the restructuring charges when it files its end-of-fiscal-year report with the SEC later this month. Nadella and CFO Amy Hood will undoubtedly face questions from Wall Street on the moves during the next earnings call, slated for July 21.

 

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