Microsoft’s massive layoffs target hardware division


Microsoft chief executive Satya Nadella announced Thursday that he will lay off 18,000 workers in the next year. (Robert Galbraith/Reuters)

Microsoft chief executive Satya Nadella announced Thursday that up to 18,000 of his employees will get pink slips in the next year, as part of a massive round of layoffs.

The cuts are the largest in the company's history and they will hit nearly 15 percent of its workforce. A copy of Nadella's e-mail to employees, posted to the company's Web site, says the job cuts will affect both "professional and factory" workers. This is biggest round of layoffs since 2009, when Microsoft eliminated 5,800 jobs due to the recession.

Nadella plans to cut 12,500 jobs from Microsoft's mobile phone unit, the Nokia Devices and Services business, which Microsoft acquired this past spring. That deal, which added 25,000 employees to Microsoft, was finalized before Nadella took over from Steve Ballmer, who wanted Microsoft to make its own phones and tablets to take on competitors such as Apple.

Nadella, however, has said he wants to focus more heavily on Microsoft's strong software and server businesses, and make a few devices that exemplify how those Microsoft services work together.

Stephen Elop, the former Nokia CEO who is Microsoft's executive vice president of devices, told his staff where the bulk of cuts will take place in a memo of his own on Thursday. He said that the firm will decrease its presence in San Diego, Beijing, Dongguan, China and Oulu, Finland. Microsoft will also phase out all operations in Komaron, Hungary. It will also stop making phones for Google's Android operating system.

Elop said the moves will "right-size" Microsoft's manufacturing operations.

"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," he wrote in a memo to his staff. "Our device strategy must reflect Microsoft’s strategy and must be accomplished within an appropriate financial envelope."

László Andor, European commissioner for employment, social affairs and inclusion, said in a statement that he's asked to meet with Microsoft representatives to discuss measures to "alleviate the social consequences" of the layoffs, and explore ways to support workers who lose their jobs.

Microsoft's Xbox Entertainment Studios -- a Santa Monica, Calif. division created to make original entertainment content for the Xbox --  will also close. Microsoft has not specified how the other job cuts will be focused, but Nadella's memo indicates that the layoffs will affect nearly every part of the company.

Many had expected that several thousand positions would be eliminated as Nadella looks to reinvent Microsoft as a more competitive and cloud- and mobile-focused business. In a 3,000-word memo last week, Nadella said several times that Microsoft's culture would have to change, and he indicated that he was planning to streamline and reshuffle the company.

But the scope of the layoffs far outpaces previous news reports or analyst estimates, which ranged from 6,000 to 12,000.

Some analysts applauded Nadella for making a difficult decision to push forward his plan for reorganization.

"While the cuts will be painful for employees, they were necessary, in our view, and speak to Nadella's attempt at cleaning up part of the mess that Ballmer left behind in Redmond," FBR Capital Markets analyst Daniel Ives said in a flash note to investors.

The scale of the layoffs is somewhat shocking, but Gartner analyst Merv Adrian said that Nadella has also been clear that his Microsoft makeover includes plans to expand other divisions. The layoffs, he said, are a "natural" choice, because they cut redundant workers and focus on departments where Microsoft is growing the fastest.

"We've been hearing for months now about new directions and policy changes. Now we're really turning to execution," Adrian said.  "This is reshaping, not just cutting."

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Hayley Tsukayama covers consumer technology for The Washington Post.
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