Microsoft on Thursday announced it plans to cut up to 18,000 jobs this year — its deepest-ever cuts — as the company looked to digest its Nokia acquisition and reposition itself for the future.
Following the Nokia acquisition, completed in April, Microsoft had roughly 127,104 employees, meaning the cuts could reduce nearly 15 percent of its workforce.
Shares of Microsoft rose 3 percent in morning trading on the Nasdaq.
Microsoft said the company is “moving now” on 13,000 of the job cuts, with the vast majority of the overall cuts coming in the next six months and fully implemented over the next 12 months.
Some 12,500 of the cuts are coming from the Nokia Devices and Services unit — roughly half that unit’s workforce. The company said it expects pre-tax charges over the next four quarters of $1.1 billion to $1.6 billion for severance and other costs.
The cuts are just the latest acknowledgement by Microsoft and new CEO Satya Nadella that the company is committed to making tough decisions to improve its position in the technology landscape.
“The first step to building the right organization for our ambitions is to realign our workforce,” Nadella said in a note to employees Thursday. “It’s important to note that while we are eliminating roles in some areas, we are adding roles in certain other strategic areas. My promise to you is that we will go through this process in the most thoughtful and transparent way possible.”
After years of being so dominant that it drew the ire of antitrust regulators, Microsoft now finds itself a distant third in the overall market for computing devices — PCs, phones and tablets. A telling slide at Microsoft’s partner conference last week noted that the company’s share of that broader computing market is just 14 percent. Nadella outlined a good chunk of his thinking in a 3,100-word memo last week in which he talked about the need for Microsoft to rethink both its corporate culture and the way it builds products.
“The day I took on my new role I said that our industry does not respect tradition — it only respects innovation,” Nadella wrote. “I also said that in order to accelerate our innovation, we must rediscover our soul — our unique core.”
The question for the company now is whether this round of cuts will help accelerate that change or merely instill additional uncertainty.
In one product detail, Nadella notes that the company will shift some of Nokia’s Android-based Nokia X line over to Windows-based phones.
Here’s Nadella’s full memo to staff:
From: Satya Nadella
To: All Employees
Date: July 17, 2014, at 5:00 a.m. PDT
Subject: Starting to Evolve Our Organization and Culture
Last week in my email to you I synthesized our strategic direction as a productivity and platform company. Having a clear focus is the start of the journey, not the end. The more difficult steps are creating the organization and culture to bring our ambitions to life. Today I’ll share more on how we’re moving forward. On July 22, during our public earnings call, I’ll share further specifics on where we are focusing our innovation investments.
The first step to building the right organization for our ambitions is to realign our workforce. With this in mind, we will begin to reduce the size of our overall workforce by up to 18,000 jobs in the next year. Of that total, our work toward synergies and strategic alignment on Nokia Devices and Services is expected to account for about 12,500 jobs, comprising both professional and factory workers. We are moving now to start reducing the first 13,000 positions, and the vast majority of employees whose jobs will be eliminated will be notified over the next six months. It’s important to note that while we are eliminating roles in some areas, we are adding roles in certain other strategic areas. My promise to you is that we will go through this process in the most thoughtful and transparent way possible. We will offer severance to all employees impacted by these changes, as well as job transition help in many locations, and everyone can expect to be treated with the respect they deserve for their contributions to this company.
Later today your Senior Leadership Team member will share more on what to expect in your organization. Our workforce reductions are mainly driven by two outcomes: work simplification as well as Nokia Devices and Services integration synergies and strategic alignment.
First, we will simplify the way we work to drive greater accountability, become more agile and move faster. As part of modernizing our engineering processes the expectations we have from each of our disciplines will change. In addition, we plan to have fewer layers of management, both top down and sideways, to accelerate the flow of information and decision making. This includes flattening organizations and increasing the span of control of people managers. In addition, our business processes and support models will be more lean and efficient with greater trust between teams. The overall result of these changes will be more productive, impactful teams across Microsoft. These changes will affect both the Microsoft workforce and our vendor staff. Each organization is starting at different points and moving at different paces.
Second, we are working to integrate the Nokia Devices and Services teams into Microsoft. We will realize the synergies to which we committed when we announced the acquisition last September. The first-party phone portfolio will align to Microsoft’s strategic direction. To win in the higher price tiers, we will focus on breakthrough innovation that expresses and enlivens Microsoft’s digital work and digital life experiences. In addition, we plan to shift select Nokia X product designs to become Lumia products running Windows. This builds on our success in the affordable smartphone space and aligns with our focus on Windows Universal Apps.
Making these decisions to change are difficult, but necessary. I want to invite you to my monthly Q&A event tomorrow. I hope you can join, and I hope you will ask any question that’s on your mind. Thank you for your support as we start to take steps forward in evolving our organization and culture.
Update: Adds stock price.
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