Microsoft reducing staff by 18K, 12.5K (about 2/3 of total) will come from the Nokia acquisition in smart phones
This is the first volley in Nadella’s restructuring of Microsoft. He realizes he is not Apple and should not be competing in HW directly with OEMs. Further, phones is a razor-thin margin business and makes little sense to be in if you are interested in profit margins approaching what Microsoft is used to in the SW business. I expect that Microsoft will either spin out or sell off the phone business within 18 months. They are making the same mistake that Google did when it bought Motorola (and ultimately sold it to Lenovo). As a first step, Nadella is refocusing Nokia phones away from the lower end X devices, going all-in on Windows Phone. That is a sound strategy for positioning the product set to meet Microsoft’s need for more market share of Windows phone, but it’s unlikely to be very successful in greatly increasing market share. But this repositioning in my opinion is a first step down the path of making the phone business “saleable”.
Of course, there will be other restructuring too, with another 5.5K layoffs. I expect most of these to be in non-strategic business units that have not contributed to the bottom line effectively. This likely will include other device businesses (e.g., Surface PRO), and for the same reasons stated above.
I believe that Nadella gets the fact that Microsoft can’t be Apple – a totally vertically integrated environment, and will refocus on cloud, services and SW assets that are growing and profitable. This is a similar path that Google took over the past few years as it too tried to be Apple for a while and realized it couldn’t.
This is the first major salvo in the new Nadella era – moving away from the Ballmer era where he focused on being a devices and services company with an eye to competing head to head with Apple on all things. So far I believe Nadella is making all the right moves to refocus on Microsoft strengths and what it can bring to the new era of computing in the cloud, internet of things, personal productivity products, etc. And to having a laser focus on what enterprises require (a very large portion of Microsoft’s business).
So my bottom line is that this move by the new management at Microsoft is a very good move and one that will realign Microsoft for the future and accelerate reinventing itself for success. The next 12-18 months should show a lot of the changes, and ultimately how successful they will be, reinventing themselves yet again for the new market realities.
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