As expected, the axe fell at Microsoft on Thursday, but the depth of the cut is surprisingly brutal: 18,000 Microsoft employees will find themselves without jobs over the next year, and the company is “moving now” to eliminate the first 13,000 positions. The job cuts are by far Microsoft’s largest ever.
Most of the positions affected hail from Nokia’s Devices and Services division. Microsoft recently acquired the division and approximately 25,000 Nokia employees for a whopping $7 billion; 12,500 of those people, or half of the entire team, will be handed pink slips as Microsoft works towards what it calls “synergies and strategic alignment.”
Shrinking the Windows Phone team to grow Windows Phone
In a letter to employees, former Nokia CEO and current Microsoft Devices head Stephen Elop explained that the changes mostly affect the Windows Phone team.
“It is particularly important to recognize that the role of phones within Microsoft is different than it was within Nokia,” he wrote. “Whereas the hardware business of phones within Nokia was an end unto itself, within Microsoft all our devices are intended to embody the finest of Microsoft’s digital work and digital life experiences, while accruing value to Microsoft’s overall strategy.”
To that end, Elop says Microsoft plans to release even more low-cost Nokia X-style devices in the future, albeit Lumia-branded ones running Windows Phone rather than Android, to take advantage of Microsoft’s Universal Apps and other Windows Phone ecosystem benefits. Nokia’s Smart Device and Mobile Phone divisions will be combined into a single overarching phone unit.
The Surface, Xbox, Perceptive Pixel, and “next generation” hardware teams will only see “limited change,” Elop writes.
“The [18,000] number is huge, but when you peel back and look at the details, it’s not as big as you would expect,” says Patrick Moorhead, founder and principal analyst at Moor Insights & Strategy. “There’s duplication between some of the hardware people, at Nokia and Microsoft, so these reductions make perfect sense.”
A leaner, meaner Microsoft
The reductions drive home a crucial point, one that has become crystal clear during the first few months of CEO Satya Nadella’s reign: The Microsoft of tomorrow is not the same as the Microsoft of yesterday.
“It’s important to note that while we are eliminating roles in some areas, we are adding roles in certain other strategic areas,” Nadella wrote in the memo announcing the cuts.
The Nokia layoffs were expected, between the overlapping roles at Nokia and Microsoft’s hardware teams and Microsoft’s pledge to cut $600 million in costs within six months of purchasing Nokia’s hardware business. It’s the other cuts that prove Nadella isn’t fooling around with his plans to make Microsoft more competitive in an increasingly mobile world.
“Nothing is off the table in how we think about shifting our culture to deliver on this core strategy. Organizations will change. Mergers and acquisitions will occur. Job responsibilities will evolve. New partnerships will be formed. Tired traditions will be questioned. Our priorities will be adjusted. New skills will be built. New ideas will be heard. New hires will be made. Processes will be simplified. And if you want to thrive at Microsoft and make a world impact, you and your team must add numerous more changes to this list that you will be enthusiastic about driving.”
In other words: Even the survivors should be thinking hard about what they bring to the table in a Microsoft that now considers itself an underdog in a world that’s rapidly expanding beyond PCs alone.
“The [5,500 layoffs] outside of [Nokia] are probably going to make the biggest changes to Microsoft,” Moorhead says. “Lowering the bureaucracy, lowering the amount of people checking other people’s work, in areas like program management for example. That’s actually all goodness for the company. Microsoft needs to increase its pace. When you look at companies like Apple and Google, Apple can bring out a major revision to its operating system three times faster than Microsoft can, and OS X is just as complex as Windows.”
And these 18,000 layoffs may just be the beginning of a bigger shake-up at Microsoft.
“I expect more layoffs at Microsoft, but for different reasons—skills changes,” Moorhead continues. He expects Nadella to continue to restructure the company to better attack mobile and scale its cloud services even faster, to name just two examples.
Nadella promises more details about the layoffs will be revealed during Microsoft’s public earnings call on July 22.
Originally published at 8:49 AM ET; updated with Stephen Elop’s and Patrick Moorhead’s comments, and to clarify the percentage of Nokia employees affected.