NO matter how you spin it, it’s never a good sign to lay off 1,850 people—even if you’re a software giant called Microsoft.
The official press release called this a “streamlining,” but there was no doubt that this meant the company was getting out of the consumer smart phone business, and that it was going to spend about $950 million—including $200 million in severance pay—to do it.
Most of the lay-offs will come from Finland, where Microsoft had bought the struggling cell phone pioneer Nokia for $7.2 billion in April 2014, in a deal initiated by then chief executive Steve Ballmer.
Barely a year after the deal was closed, in July 2015, Microsoft announced that it was writing off $7.6 billion and laying off 7,800 employees as part of a restructuring of its mobile phone business. The company also booked a restructuring charge of $2.1 billion and $435 million for “integration expenses.”
The announcement last week brings the running total of Microsoft’s costly phone misadventure to at least $11 billion, with current Chief Executive Satya Nadella trying to contain the damage wrought by Ballmer’s ill-advised decision back in 2013 to buy Nokia, which was already struggling because it had chosen to use Windows Phone as the primary operating system for its smart phones.
Nadella’s move to get out of the consumer smart phone business was a no-brainer, given the company’s failure to make a dent in the market.
The market research company Gartner recently reported that while smart phone sales had increased by nearly 4 percent in first quarter this year, Microsoft’s Windows Phone saw its share of the market shrink below 1 percent. Gartner estimated that the company was able to sell only 2.4 million Windows Phones for a market share of 0.7 percent—a decline from its 2.5 percent share in the first quarter of 2015.
In a memo to all employees, the head of Microsoft’s Windows and Devices group Terry Myerson said the company was scaling back but was not out altogether of the phone business. The new direction, he said, was to focus on the enterprise market.
“[O]ur phone success has been limited to companies valuing our commitment to security, manageability, and Continuum, and with consumers who value the same. Thus, we need to be more focused in our phone hardware efforts,” Myerson wrote.
But in the same memo, Myerson said Microsoft would be pragmatic and “embrace other mobile platforms.”
“Regardless of a person’s phone choice, we want everyone to be able to experience what Microsoft has to ofter them,” he added.
Despite a general assurance that the company was still in the game (“we’re scaling back but we’re not out!”), Myerson’s memo was short on specifics on how the company would go about selling more Windows Phones to corporate customers, most of whom are probably already using Apple iPhones or Android smart phones. Nor did the memo lay out any sort of a hardware roadmap for future phone models, or say how the company could grow the business by scaling back.
It is probably also worthwhile to note that another phone company that abandoned the consumer market to focus on the enterprise—BlackBerry—isn’t doing all that well, either.
Ironically, the only one that might gain from Microsoft’s missteps is Nokia, which is looking at a revival of its phone business.
Earlier this month, when Microsoft sold its feature phone business to Taiwan’s Foxconn, Nokia said it has signed a deal to license its brand to HMD Global, a new Finnish company run by ex-Nokia employees to create “a new generation of Nokia-branded mobile phones and tablets.”
TechCrunch reports that Nokia has already been working with Foxconn on an Android tablet while HMD will have a portfolio of smart phones based on Android.
Turning to Android, in fact, was what Nokia was doing belatedly in an effort to arrest its decline—just before it sold its mobile phone business to Microsoft. Chin Wong
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