Company will write down its entire$7.3 billion purchase of Nokia in Q4, take restructuring charge of up to $850 million.
July 9, 2015
by The Associated Press
NEW YORK — Microsoft will cut 7,800 jobs and take a $7.6 billion impairment charge as it attempts to revive its flagging phone hardware business.
The new cuts come on top of the 18,000 jobs that were trimmed last year and just over a year after the company made an aggressive push into the smartphone market.
The company paid $7.3 billion for Nokia’s phone business in April 2014, seeking to push rapidly into the smartphone sphere as its traditional software business slowed. Microsoft ultimately wanted to build an ecosystem that created customers that were loyal to a slew of its products, much as Apple and Google have done so successfully.
But Microsoft’s Windows Phone system has gained little traction against Apple’s iPhone and Google’s Android system.
Now the company says it will write down more than the entire cost of buying Nokia in the fourth quarter and also take a $750 million to $850 million restructuring charge.
“We are moving from a strategy to grow a standalone phone business to a strategy to grow and create a vibrant Windows ecosystem including our first-party device family,” CEO Satya Nadella said in a printed statement.
The Nokia deal was made under Nadella’s predecessor Steve Ballmer, who wanted Microsoft to make its own smartphones and tablets.
But Nadella has been moving away from this strategy in order to focus on the company’s core software business and related services.
Last year, he announced a broad restructuring including cutting the 18,000 jobs, the biggest round of layoffs in the company’s history. About half of those, 12,500, were jobs associated with the Nokia unit.
He has also warned employees of the need to “make some tough choices in areas where things are not working.”
Other recent moves include handing off some its digital advertising business to AOL and selling its street-image mapping operation to Uber.
FBR analyst Daniel Ives said the cuts will be painful, but are necessary.
“We believe Nadella’s proactive approach at cleaning up the Nokia acquisition is a positive ‘tipping of the hand’ around Microsoft’s future focus on software (versus hardware) as the company heads into a pivotal year, with Windows 10 front and centre as a major product catalyst,” Ives said.
Microsoft’s latest operating system, Windows 10, is scheduled to be released on July 29.
Microsoft said it will give more details when it reports fourth-quarter earnings on July 21.
Shares rose 41 cents to $44.71 in morning trading.