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Microsoft Slicing 18,000 Jobs: More Change Ahead

Microsoft announces largest layoff in its history as it restructures and integrates recently acquired Nokia devices unit. CEO Satya Nadella promises sweeping organizational changes.
Microsoft Office For iPad Vs. iWork Vs. Google
Microsoft Office For iPad Vs. iWork Vs. Google
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Microsoft will slash 18,000 jobs from its payroll during the next 12 months, the company announced on Thursday, with the majority of the cuts to occur by the end of the year.

The headcount reduction, which amounts to roughly 14% of Microsoft's global workforce, is the largest in company history. Roughly 12,500 of the eliminated positions will come from integrating Microsoft's recently acquired Nokia Devices and Services Division; the deal to buy Nokia closed in April. Microsoft had more than 127,000 employees worldwide as of the beginning of June.

"Our workforce reductions are mainly driven by two outcomes: work simplification as well as Nokia Devices and Services integration synergies and strategic alignment," Microsoft CEO Satya Nadella told employees in an email. Microsoft EVP Stephen Elop, who joined the company as part of the Nokia acquisition, sent a separate email to Microsoft Devices staff.

[More challenges ahead for Windows Phone. Read Apple-IBM Deal: Trouble For Google, Microsoft.]

Nadella's recent public comments, including a company-wide memo and his keynote address at Microsoft's Worldwide Partner Conference, have continued to lay out his course for Microsoft's near- and long-term future. That direction includes a considerable reshaping of predecessor Steve Ballmer "devices and strategies" mantra to "productivity and platform," with the former term especially becoming a touchstone for Nadella's vision and team.

If you take Nadella at his word, the job cuts aren't simply a cost-cutting measure, as is sometimes the case in corporate downsizings, but a first step toward sweeping changes to how Microsoft operates.

"First, we will simplify the way we work to drive greater accountability, become more agile, and move faster. As part of modernizing our engineering processes the expectations we have from each of our disciplines will change," Nadella wrote in his email. That shift, even broadly described, makes sense given Microsoft's recent "mobile-first, cloud-first" drumbeat: if you want to sing that refrain, the development and testing cycles of the shrink-wrapped software of yore won't cut it.

It would appear, too, that the job cuts won't all come from the trenches. Nadella indicated Microsoft's org chart may look quite different by this time next year: "We plan to have fewer layers of management, both top down and sideways, to accelerate the flow of information and decision making," he wrote. "This includes flattening organizations and increasing the span of control of people managers."

In his own email, Elop outlined changes to devices strategy and operations, with most of the changes coming to phones, including a consolidation of the Smart Devices and Mobile Phones units into a single phone division. In previewing the upcoming restructuring, Elop noted that while phones were the business previously at Nokia, they're only part of the business at Microsoft. Microsoft intends to drive Windows Phone adoption in the near term by targeting the rapidly growing market for lower-priced devices with its Lumia devices. It will also redirect select Nokia X devices to the affordable phone market.

On the higher end of the smartphone market, Elop said, "We will focus on delivering great breakthrough products in alignment with major milestones ahead from both the Windows team and the Applications and Services Group."

Nadella told Microsoft employees that, in spite of the deep cuts, "we will be adding roles in other strategic areas," though he didn't offer specifics.

Microsoft said it expects to take pre-tax charges related to the restructuring of up to $1.6 billion over the next four quarters, including between $750 and $800 million in severance and benefits costs from the staff reduction. The layoffs will be completed by June 30, 2015, with most of the cuts occurring much sooner, according to the company.

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