Microsoft Corp.’s chief executive announced sweeping layoffs Thursday that will affect workers worldwide.
Analysts were surprised by the number – up to 18,000 job cuts over the next year – but not by the move.
“They had to shed the notion that it was fortress Microsoft, where everything was Windows first,” said Merv Adrian, a vice president of research at Gartner Inc. “They are moving from a company that has historically played catch-up for the last decade into a company that wants to go back into that leadership role that they were in long before, and that means a differently shaped Microsoft.”
The biggest and broadest layoffs in the company’s 39-year history amount to about a 14 percent overall reduction – including a nearly 50 percent reduction at Nokia’s mobile phone unit and a 5 percent reduction elsewhere. Microsoft acquired the Nokia division in April, a deal agreed to before Satya Nadella became Microsoft’s chief executive, replacing Steve Ballmer. Ballmer, now retired from Microsoft, has put in a $2 billion bid to buy the Los Angeles Clippers.
Nearly 13,000 job cuts will begin immediately, including about 1,350 losses at Microsoft headquarters in the Seattle area. More will come from Nokia’s engineering office in San Diego, its factory in Hungary and its offices in Finland and Beijing. On Thursday, Microsoft said it was shutting down Los Angeles-based Xbox Entertainment Studios, a division that had been focused on building original entertainment programming for the Xbox.
“There’s hope for a faster, nimbler Microsoft,” said Colin Gillis, senior technology analyst at BGC Partners. “The idea is to reduce the layers of management vertically and horizontally, so you can speed things up.”
In a note to clients, FBR Capital Market analysts Daniel Ives and James Moore said that while the cuts were “painful” for employees, they were necessary considering all the duplication Nokia brought in the door.
“Microsoft needs to be a ‘leaner and meaner’ technology giant over the coming years in order to strike the right balance of growth and profitability around its cloud and mobile endeavors,” they said.
Microsoft, whose Windows operating system still powers most traditional computers, has fallen far behind Google, Apple, and Amazon in smartphones, tablets and servers – the areas of computing showing the most growth.
Company officials said Thursday that they were committed to bringing Windows to more smartphones. Nokia, which had been making some phones powered by Google’s Android operating system, will now shift to Windows. The Nokia unit also plans to scale back production of its own devices or move the work from Europe to cheaper markets such as China, Vietnam and Brazil.