Microsoft to Cut Jobs, Take $7.6 Billion Writedown on Nokia

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Why Microsoft Wrote Down Nokia

Microsoft Corp. plans to cut as many as 7,800 jobs and write down about $7.6 billion on its Nokia phone-handset unit, wiping out nearly the entire value of a business that failed to gain market share since it was acquired last year.

The company also will record a restructuring charge of about $750 million to $850 million for the reorganization under Chief Executive Officer Satya Nadella, the Redmond, Washington-based company said in a statement Wednesday. Microsoft had about 120,000 employees at the end of March.

Nadella is scaling back its mobile ambitions, seeking to tailor Windows devices for a narrower set of customers, instead of trying to sell as many mobile phones as possible in a market dominated by Apple Inc. and Google Inc.

The latest round of job cuts -- which include 2,300 in Finland, where Nokia is based -- come a year after Microsoft said it would let go of 18,000 employees, and less than two weeks after the company announced plans to exit the Web display advertising business. Since becoming CEO last year, Nadella has been acquiring mobile and cloud software makers, and cutting units not central to his strategy.

Last month, the 47-year-old executive made his biggest overhaul since taking over, revamping his leadership team to reflect a focus on three areas: personal computing, cloud platforms and business productivity. With the phone operation failing to make headway against devices using Apple’s and Google’s mobile operating systems, the company also said that Stephen Elop, the former CEO of the Nokia business that Microsoft bought, was stepping down.

Reducing Releases

Nadella’s restructuring plan includes sharply reducing the number of models the company will release, now about one a week when counting variations for geographical markets, a person familiar with the plans said. Instead, Microsoft will release one or two models a year in each of three categories, said the person, who asked not to be named because the plans aren’t public. The categories are business-focused devices, phones for customers looking for low-price smartphones, and high-end devices for Windows enthusiasts.

Microsoft purchased Nokia’s handset business in April 2014 for $9.5 billion, but the deal hasn’t boosted Windows Phone’s market share.
Microsoft purchased Nokia’s handset business in April 2014 for $9.5 billion, but the deal hasn’t boosted Windows Phone’s market share.

The company also will exit locations and carrier relationships where it hasn’t been successful, the person said. While the U.S. has been a difficult market for Nokia, Microsoft is unlikely to stop making phones for the country because of its size, the person said.

Pete Wootton, a company spokesman, declined to give details on the restructuring plans.

Finland Offices

Microsoft will close its operations for high-end phones in Salo, Finland, focusing phone engineering in the country in Espoo and Tampere, according to a memo written by Terry Myerson, who runs the Windows and hardware group, and obtained by Bloomberg. Microsoft also plans to shut its San Diego engineering facility and cut staff in Beijing, where it will focus on inexpensive phones and relationships with other device makers, according to the memo.

Microsoft purchased Nokia’s handset business in April 2014 for $9.5 billion, including $1.5 billion in acquired cash. Seven months earlier, then-CEO Steve Ballmer announced plans to acquire the Finland-based unit as a last-ditch effort to gain users for Microsoft’s Windows Phone software, which had been languishing at less than 5 percent of the market for mobile operating systems.

Market Share

The deal hasn’t boosted Windows Phone’s market share, however, and Microsoft loses money on every phone it sells, even before accounting for research and development and sales and marketing. The business already had cut more than 10,000 jobs.

The writedown -- to be taken in the company’s fiscal fourth quarter, which ended June 30 -- is Microsoft’s biggest since a $6.2 billion charge in 2012 on the purchase of Internet ad company AQuantive Inc. It took five years for the Redmond, Washington-based company to record the AQuantive charge.

The purchase of the Nokia unit was controversial from the start. The company’s board, including then-Chairman Bill Gates, rejected an earlier version of the acquisition, causing Ballmer to shout that if he didn’t get his way, he couldn’t serve as CEO, people briefed on the meeting said last year.

Executive Resistance

Several of Ballmer’s senior executives also didn’t support the proposed purchase. That group included Nadella, who at the time led the company’s server and cloud unit, the people said. Nadella later changed his mind. In March 2014, a month after being named CEO, Nadella said the deal was “the right move for Microsoft.”


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The business wasn’t necessarily something that Nadella “would’ve acquired on his own,” said Shannon Cross, an analyst at Cross Research. “Microsoft is making the changes required in a difficult end market.”

Once the deal closed, matters didn’t get much better. Antitrust approval caused almost an eight-month wait for Microsoft to take over the unit, during which time its results continued to erode.

The company also hasn’t realized the cost savings it anticipated. Chief Financial Officer Amy Hood said in April that although Microsoft had cut $2 billion from the $4.5 billion in annualized operating expenses it recorded when the deal closed, the business would not, as previously predicted, reach break-even on operating basis in the fiscal year beginning July 1.

‘Elevated Risk’

Microsoft said in an April filing that it had $5.24 billion in goodwill on its books related to the Nokia business as of March 31. The company also said the unit didn’t meet sales volume or revenue goals and that margins were lower than expected.

“Given its recent performance, the Phone Hardware reporting unit is at an elevated risk of impairment,” the company said at the time.

Microsoft’s stock, which has declined 4.8 percent this year, was little changed at $44.24 at the close in New York.

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