With the largest round of job cuts in the company’s history, Microsoft Corp. chief executive officer Satya Nadella is making bold moves to reset the software giant’s focus and ensure it can compete with the tech industry’s top players.
The Redmond, Wash.-based company will lay off as many as 18,000 of its 127,000 employees over the next six months. The company estimates the restructuring will cost between $1.1-billion (U.S.) and $1.6 billion in pretax charges, which will be spread over the next four quarters.
Under Mr. Nadella’s tenure, Microsoft is shifting its attention away from mobile hardware to cloud computing and mobile platforms. Mr. Nadella led the company’s enterprise and cloud-computing division before being appointed as CEO in February.
In a message to employees announcing the job cuts, Mr. Nadella said “it’s important to note that while we are eliminating roles in some areas, we are adding roles in certain other strategic areas.” He added that the company will flatten management structures to “become more agile and move faster.”
Wall Street reacted positively to the news; shares of the company rose 1 per cent as the broader market fell sharply. Microsoft will release fourth-quarter earnings on July 22.
Of the layoffs, 13,000 will be immediate and 12,500 will come from Nokia. Microsoft purchased the cell phone company for $7.2-billion in a deal that closed in April. Restructuring was expected as a result of integrating Nokia into Microsoft and eliminating redundancies, but the 18,000 number surprised some analysts.
“Everybody saw the Nokia stuff coming, but the total number was more than expected,” said Merv Abrian, an analyst with Gartner Inc., an IT research and advisory company.
Mr. Abrian said Mr. Nadella is using his honeymoon period as CEO to lay a solid foundation for the company’s future.
“It was the opportunity for him to double down, and he showed he’s willing to be aggressive.”
Mr. Abrian added that it’s a strategic rather than reckless kind of aggression, and it shows that Microsoft is prepared to adapt to a tech environment in which the company will have a presence on as many devices as any user has. He points out that Microsoft now has more cloud-computing infrastructure than Amazon, which has long been a powerhouse in the field.
“What’s different about this story is that this is not a company that’s trying to cut its way to profitability. They’re trying to invest in the right places.”
Not all of Microsoft’s investments are paying dividends. The company also announced it plans to unwind Xbox Entertainment Studios, the division it established in 2012 to produce original content for Xbox Live, which has 48 million users.
The company lured studio chief Nancy Tellem from CBS Corp. to create original content to compete with the likes of Netflix Inc. But XES struggled to get off the ground. It took 21 months for its first series to debut last month, and despite plans to create a TV series for its valuable gaming property Halo, XES missed out on series such as House of Cards.
A company spokesperson declined to say whether the layoffs would affect any of Canada’s 2000 Microsoft employees.
Microsoft closed Thursday at $44.53, its highest level since 2000. Its stock has increased 25 per cent over the past year.
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