New York: Microsoft's India-born CEO Satya Nadella Thursday announced axing up to 18,000 jobs over the next year, the biggest round of jobs cuts in its 39-year history, in a "difficult but necessary" move as it integrates recently acquired Nokia business and cuts costs.
The company expects to incur pre-tax charges of up to USD 1.6 billion over the next four quarters, including upto USD 800 million for severance and related benefit costs, and USD 350 million to USD 800 million of asset-related charges.
The layoffs, the first since Nadella took over the helms of the company five months ago, however, will have "minimal" impact in India, which is an important geography for the US-based giant.
Of the total 18,000, about 12,500 professional and factory positions will be eliminated through synergies and strategic alignment of the Nokia Devices and Services business acquired by Microsoft this year.
The workforce realignment is expected to be substantially complete by end of this year and fully completed by June 2015.
"Making these decisions to change are difficult, but necessary," Nadella said.
"Having a clear focus is the start of the journey, not the end. The more difficult steps are creating the organization and culture to bring our ambitions to life.
"The first step to building the right organization for our ambitions is to realign our workforce. 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," Nadella, who took over from Steve Ballmer in February, said in an email to employees.
Microsoft is moving 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.
When asked on the restructuring impact on India, a Microsoft India spokesperson told PTI: "We have about 6,500 employees in India, which also includes employees from Nokia. The impact will be minimal. It will be very very small."
As of June 30, 2013, Microsoft had about 99,000 people on a full-time basis, 58,000 in the US and 41,000 worldwide. This, however, does not include the employees moving in post the Nokia-deal.
Earlier this year, Microsoft completed the acquisition of Nokia's handset division for which it paid over USD 7.2 billion.
The last major job cuts at the software pioneer happened in 2009, when about 5,800 people were affected.
Nadella said that while the firm is eliminating roles in some areas, it is adding roles in other strategic areas.
"My promise to you is that we will go through this process in the most thoughtful and transparent way possible.
"We will offer severance to all employees impacted by these changes, as well as job transition help in many locations, and everyone can expect to be treated with the respect they deserve for their contributions to this company," he added.
Nadella, the firm's third CEO after Bill Gates and Steve Ballmer, said the workforce reductions are mainly driven by two outcomes -- work simplification as well as Nokia Devices and Services integration synergies and strategic alignment.
Explaining the process, Nadella said: "First, we will simplify the way we work to drive greater accountability, become more agile and move faster. As part of modernising our engineering processes the expectations we have from each of our disciplines will change."
In addition, the firm plans to have fewer layers of management, both top down and sideways, to accelerate the flow of information and decision making. This includes flattening organisations and increasing the span of control of people managers.
"In addition, our business processes and support models will be more lean and efficient with greater trust between teams. The overall result of these changes will be more productive, impactful teams across Microsoft," he said.
The changes will affect both the Microsoft workforce and its vendor staff.
"Second, we are working to integrate Nokia Devices and Services teams into Microsoft. We will realise the synergies to which we committed when we announced the acquisition last September. The first-party phone portfolio will align to Microsoft?s strategic direction.
"To win in the higher price tiers, we will focus on breakthrough innovation that expresses and enlivens Microsoft's digital work and digital life experiences," he added.
In addition, Microsoft plans to shift select Nokia X product designs to become Lumia products running Windows.
"This builds on our success in the affordable smartphone space and aligns with our focus on Windows Universal Apps," Nadella said.
Earlier this week, Nadella had written a similar letter to the employees suggesting structural changes as the firm moves towards a "cloud first, mobile first strategy."
In a separate letter to employees, Microsoft Devices Group Executive VP Stephen Elop said: "As difficult as some of our changes are today, this direction deliberately aligns our work with the cross company efforts that Satya has described in his recent emails.
"Collectively, the clarity, focus and alignment across the company, and the opportunity to deliver the results of that work into the hands of people, will allow us to increase our success in the future."
Explaining the strategy Elop, who earlier served as the CEO of Nokia before Microsoft acquired its handset division, said there will be "particularly focused on making the market for Windows Phone."
"In the near term, we plan to drive Windows Phone volume by targeting the more affordable smartphone segments, which are the fastest growing segments of the market, with Lumia.
In addition to the portfolio already planned, we plan to deliver additional lower-cost Lumia devices by shifting select future Nokia X designs and products to Windows Phone devices."
Microsoft expects to make the shift "immediately", while continuing to sell and support existing Nokia X products.
"To win in the higher price segments, we will focus on delivering great breakthrough products in alignment with major milestones ahead from both Windows team and the Applications and Services Group," he explained.
Microsoft plans to take advantage of innovation from the Windows team, like Universal Windows Apps, to continue to enrich Windows application ecosystem, he said.
"And in the very lowest price ranges, we plan to run our first phones business for maximum efficiency with a smaller team," Elop said.
Elop said he expects "these" changes to have an impact to the team structure.
The firm plans to consolidate the former Smart Devices and Mobile Phones business units into one phone business unit that is responsible for all the phone efforts.
"Under the plan, the phone business unit will be led by Jo Harlow with key members from both the Smart Devices and Mobile Phones teams in the management team.
"This team will be responsible for the success of Lumia products, the transition of select future Nokia X products to Lumia and for the ongoing operation of the first phone business," Elop said.
As part of the effort, Microsoft plans to select the appropriate business model approach for its sales markets while continuing to offer products in all markets with a strong focus on maintaining business continuity.
"We will determine each market approach based on local market dynamics, our ability to profitably deliver local variants, current Lumia momentum and the strategic importance of the market to Microsoft," he added.
Microsoft's phone engineering efforts are expected to be concentrated in Salo, Finland (for future, high-end Lumia products) and Tampere, Finland (for more affordable devices). It will also plan to develop supporting technologies in both locations.
"We plan to ramp down engineering work in Oulu. While we plan to reduce the engineering in Beijing and San Diego, both sites will continue to have supporting roles, including affordable devices in Beijing and supporting specific US requirements in San Diego.
"Espoo and Lund are planned to continue to be focused on application software development," Elop said.
He further said: "We plan to right-size our manufacturing operations to align to the new strategy and take advantage of integration opportunities. We expect to focus phone production mainly in Hanoi, with some production to continue in Beijing and Dongguan. We plan to shift other Microsoft manufacturing and repair operations to Manaus and Reynosa respectively, and start a phased exit from Komaron, Hungary."
First Published: Thursday, July 17, 2014, 18:14