Microsoft announced the biggest layoff in its history Thursday as CEO Satya Nadella said the company will cut 18,000 jobs — about 14 percent of the company’s workforce — over the next year.
Of those cuts, at least 1,351 will come from the Puget Sound area. That’s about 3 percent of the approximately 43,000 employees Microsoft has in this area.
Most of the cuts — about 12,500 professional and factory positions — are mainly former Nokia positions, with some Microsoft positions being eliminated because of job duplication, resulting from Microsoft’s acquisition of Nokia, which closed in April.
Microsoft is starting today to eliminate 13,000 of the 18,000 jobs, with the majority of the remaining 5,000 to be notified over the next six months.
Some of the jobs from the remaining 5,000 will come from the Puget Sound area.
Indeed, “the emphasis on simplifying management structure and the fact that a lot of those corporate groups are here would imply that more local cuts are coming” as part of the 5,000 job holders who will be notified over the next six months, said analyst Sid Parakh of Seattle-based investment firm McAdams Wright Ragen.
The jobs being eliminated cut across multiple functions at Microsoft, though the company declined to specify which areas were hardest hit. (One definite area is Xbox Entertainment Studios, which Microsoft is shutting down.) The 1,351 local jobs that are starting to be eliminated today also cut across multiple functions, including marketing and engineering, a company spokesman said.
Microsoft will offer severance to those laid off and job transition help in many locations.
“My promise to you is that we will go through this process in the most thoughtful and transparent way possible,” CEO Satya Nadella wrote in a memo sent to all employees this morning.
The cuts, he added, “are mainly driven by two outcomes: work simplification as well as Nokia Devices and Services integration synergies and strategic alignment. … It’s important to note that while we are eliminating roles in some areas, we are adding roles in certain other strategic areas.”
…(We) will simplify the way we work to drive greater accountability, become more agile and move faster. … In addition, we plan to have fewer layers of management, both top down and sideways, to accelerate the flow of information and decision making. This includes flattening organizations and increasing the span of control of people managers. In addition, our business processes and support models will be more lean and efficient
The company declined to say if, or how, the cuts will affect contractors and vendors, although Nadella alluded to changes that will “affect both the Microsoft workforce and our vendor staff” in his memo.
Stephen Elop, head of Microsoft’s hardware division that includes the former Nokia phone business, also sent an email to employees today, in which he said the company plans to merge Nokia’s former Smart Devices and Mobile Phone business units into one phone business unit.
The company will be focusing on the Lumia brand of Windows Phones smartphones, focusing on “delivering great breakthrough products” for its higher-end phones, while adding more lower-cost Lumia devices to increase Windows Phone sales. (Despite being in the market for nearly four years, Windows Phone still has only a tiny share of the worldwide smartphone market.) Microsoft will also no longer make new Android-based Nokia X phones, Elop said.
“It is particularly important to recognize that the role of phones within Microsoft is different than it was within Nokia,” Elop said in his email. (Elop was also Nokia’s CEO from 2010 to 2013.)
“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,” Elop wrote. “Our device strategy must reflect Microsoft’s strategy and must be accomplished within an appropriate financial envelope.”
Another area Microsoft is cutting is Xbox original programming. Microsoft is closing the 2-year-old Xbox Entertainment Studios, which just three months ago outlined its plans for a slate of original TV programs for the Xbox Live service.
Studio executives Nancy Tellem and Jordan Levin and some from the studios team will remain to focus on a smaller group of original programs already in production such as a “Halo” TV series and a documentary series called “Signal to Noise,” according to a memo from Xbox and Microsoft Studios head Phil Spencer.
The company will continue to provide interactive sports content such as NFL on Xbox, Spencer wrote, and its app partnerships with content entertainment and sports content providers will continue, Spencer wrote.
The company did not say how many people from Xbox Entertainment Studios will be laid off. The Studios has 35 employees in its Santa Monica, Calif. location, 120 in Vancouver B.C., and five in Redmond.
As a result of the job cuts, Microsoft expects to incur pre-tax charges of $1.1 billion to $1.6 billion over the next four quarters, including $750 million to $800 million for severance and related benefit costs, and $350 million to $800 million of asset-related charges, the company said in a news release.
Layoffs have been expected, following the closing on April 25 of Microsoft’s $7.5 billion purchase of Nokia’s phone business. That deal brought 25,000 Nokia employees – many of them located in Nokia’s factories worldwide – onto Microsoft’s payroll. As part of that deal, Microsoft had also committed to annual cost savings of $600 million for 18 months after the deal closes.
Layoff rumors had gained strength in recent weeks, particularly with the start of the company’s fiscal year this month. And Nadella himself hinted layoffs were coming in a memo outlining his vision for the company’s direction that he emailed to employees last week.
In that memo, he wrote about his vision of Microsoft as a “productivity and platform company for the mobile-first and cloud-first world,” and the need for sweeping cultural changes to make that happen.
“Nothing is off the table in how we think about shifting our culture to deliver on this core strategy,” Nadella wrote in his memo. “Organizations will change. Mergers and acquisitions will occur. Job responsibilities will evolve. … Every team across Microsoft must find ways to simplify and move faster, more efficiently.”
Merv Adrian, an analyst with research firm Gartner sees the announcement today as Microsoft “taking an aggressive and activist posture to reshaping its organization along the lines that Satya has talked about. … What we’re looking at is a company cutting not out of weakness but a desire to reshape itself.”
Sandeep Krishnamurthy, dean of the University of Washington Bothell School of Business, sees the layoffs as “a quite clear signal that the whole Nokia adventure is over.”
Former CEO Steve Ballmer, who had pushed for the Nokia acquisition, had positioned the purchase as a major part of his move to transition the company into one that produces devices and services.
But Nadella, in his memo last week, said that “while the devices and services description was helpful in starting our transformation, we now need to hone in on our unique strategy.”
“What we are now seeing is that there is quite a clear shift in direction” under Nadella, Krishnamurthy said. “This is the new CEO putting his imprint, no doubt about it.”
Krishnamurthy says any effect on the local economy will likely play out over the next 6 months to a year, most notably in the local residential real estate market.
Paul Turek, an economist with Washington state’s Employment Security Department, said the cuts are “likely to have some short-term impact on the area” but that King County is the one county in the state that’s probably best positioned to take such a hit.
“The labor market’s been moving forward, probably faster [in King County] than any other county in this state,” he said. That indicates “a growing labor force that’s attracting workers because of the stronger hiring prospects within the region.”
The unemployment rate in King County in May was 4.7 percent, compared to 6.1 percent for the state as a whole, according to Turek.
This is only the second time Microsoft has instituted such large, sweeping cuts.
In 2009, in response to the global recession, Microsoft instituted several rounds of layoffs, resulting in a total of 5,800 jobs cut – or about 6 percent of its workforce then. Some 1,500 of the jobs cut were in the Puget Sound area.
The company regularly makes smaller job cuts, including a marketing restructuring in 2012 that resulted in some 200 layoffs, as it adjusts its businesses and priorities.
As of June 5, Microsoft had 127,104 employees (including the 25,000 former Nokia employees), 43,031 of them in the Puget Sound area.
The layoff news pushed Microsoft’s stock price up 3.7 percent to $45.71 in early trading, but it gave up much of its gains and closed Thursday at $44.53, up 45 cents, or 1 percent.
[Here’s the story running in the print edition of The Seattle Times July 18 on the layoffs.]