News Column

Nokia bears brunt of Microsoft layoffs

July 17, 2014

By Jon Swartz, @jswartz, USA TODAY


Even by Silicon Valley's outsized standards, this week has been head-spinning. Longtime frenemies Apple and IBM announce a business partnership. Yahoo continues its advertising struggles, leading to whispers of layoffs. PC sales stabilize, ushering in surprisingly impressive financial results for Intel.

But for sheer jaw-dropping effect, nothing comes close to Microsoft's plans to eliminate up to 18,000 jobs amid the apparent gutting of Nokia, the smartphone maker Microsoft acquired for $7.2billion.

Some two-thirds of the cuts come from Nokia. Later Thursday, Microsoft said it was shutting down Xbox Entertainment Studios, a division that helped create original entertainment programming for the Xbox. Overall, Microsoft employs 125,000.

Microsoft CEO Satya Nadella "was not a fan" of the Nokia purchase, says Mike Feibus, an analyst who follows Microsoft. Nokia was part of former CEO Steve Ballmer's "devices and services" mission, which Nadella is moving away from, he says.

Nadella has said he doesn't want to compete with big hardware companies that make PCs based on Windows, Microsoft's recently announced Surface Pro 3 tablet aside, Feibus says.

"Seriously, the only Microsoft-owned hardware he's openly supported is Xbox."

Though Nadella has offered encouraging words about Surface Pro 3 and smartphones, Thursday's actions staggered Nokia.

The software giant plans to scotch Nokia's brief foray into Android-based phones. The acquisition of Nokia's handset business added 25,000 people to Microsoft's payroll.

"We plan to shift select Nokia X product designs to become Lumia products running Windows," Nadella wrote in his memo announcing the job cuts. To underscore its point, Microsoft said it doesn't plan to make future Android-based Nokia X phones.

Nokia was the most logical choice to absorb the brunt of cuts. Redundancy existed with jobs, and Microsoft "likes to keep things local" in Redmond, Wash., says Forrester analyst J.P. Gownder. (Nokia is headquartered near Helsinki.)

Mobile is crucial to Nadella's plans, so Nokia should not be discounted. It will just have to make do with a fraction of its staff.

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Source: USA Today

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