As expected, Microsoft announced the largest-ever layoffs in its corporate history, with up to 18,000 employees—or 14 percent of the workforce—expected to lose their jobs over the current fiscal year, which ends in June 2015. Fully half of the 25,000 employees that came to Microsoft from Nokia will be among those let go.
"The first step to building the right organization for our ambitions is to realign our workforce," Microsoft CEO Satya Nadella wrote in an open letter to employees. "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. 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."
While putting a positive spin on such a move will be met with some skepticism, Mr. Nadella noted that Microsoft was still hiring in "certain other strategic areas." Those employees who are impacted by the layoffs will be offered severance packages, Microsoft said, and many will be able to transition to other jobs within the company.
Mr. Nadella had hinted at the coming layoffs in a recent open letter to employees and this week my own sources told me the layoffs would be the worst in Microsoft's history and would start as soon as today. Microsoft, of course, was already a top-heavy organization before the Nokia acquisition, and with 25,000 employees coming to the company as part of that purchase, it was clear that many of them would be redundant.
Separately, Microsoft executive vice president Stephen Elop—the former Nokia CEO—wrote a separate letter to employees in which he explained that his Devices Group would be realigning around Microsoft's new strategy.
"We must concentrate on the areas where we can add the most value," he wrote. "The roots of this company and our future are in productivity and helping people get things done. Our fundamental focus—for phones, Surface, for meetings with devices like PPI, Xbox hardware and new areas of innovation—is to build on that strength. . . We have had an opportunity to plan carefully about the alignment of phones within Microsoft as the transferring Nokia team continues with its integration process."
To help drive Windows Phone, which has stagnated at 4 percent of the market for smart phones, Microsoft will focus on the low-end of the market, Elop said. The firm will also "shift" many of its Android-based Nokia X handsets to Windows Phone, a move that will be cheered by Windows Phone fans, and restructure the phone part of the business around the Lumia brand.
Additionally, Microsoft will "right size" its Nokia-based manufacturing facilities, meaning that many will be closed. "We expect to focus phone production mainly in Hanoi, with some production to continue in Beijing and Dongguan," Elop explained. "We plan to shift other Microsoft manufacturing and repair operations to Manaus and Reynosa respectively, and start a phased exit from Komaron, Hungary." The 12,500 former Nokia employees who are being laid off are primarily factory direct and professional employees, Elop said.