The Redmond, Wash.-based software giant said Thursday it will
eliminate up to 18,000 jobs over the next year, more than half of which
will come in the Nokia business it acquired in April. The cuts will result in a restructuring charge of $1.1 billion to $1.6 billion.In an e-mail to employees, Nadella positioned the job cuts as part of the evolution of Microsoft’s culture as he reorients its direction toward the growth occurring in mobile devices and the cloud.
Stephen Elop, formerly the CEO of Nokia and now head of Microsoft’s devices business, told employees that the role of mobile devices is different within larger structure of Microsoft.
“Our device strategy must reflect Microsoft’s strategy and must be accomplished within an appropriate financial envelope,” Elop wrote. Of the 18,000 planned job cuts, most of which will take place in the next six months, about 12,500 will come from the Nokia business.
In a note to clients Thursday morning, Nomura analyst Rick Sherlund said the size of the headcount reduction was “bolder” than he anticipated, and implies that Microsoft wants to “mitigate the risk of the Nokia acquisition” on its financial results. While he expects the cost savings could add substantially to 2015 earnings, he warned that the cuts may also indicate that “Nokia operating results could be worse than we have estimated.”
Citi analyst Walter Pritchard called the move “taking a chainsaw to costs,” and thinks that Nadella’s actions will be “music to the market’s ears.” Pritchard warns though, that the fundamentals of the business are little changed by the expense cuts.
“[I]t still istn’ clear how Microsoft makes any progress in fulfilling the value of its Universal Apps vision when share in mobile devices is sub 5%,” the Citi analyst writes. In a world where users’ consumer and work needs are blended, he writes, “we aren’t sure how Microsoft stays relevant.”
Nadella, who took over as chief executive in February, is just Microsoft’s third CEO after Steve Ballmer and Bill Gates.
Shares of Microsoft were up 3% at $45.38 in the first hour of trading Thursday, and have gained 21% this year.
