As it lays off workers, Microsoft also kills its low-end Nokia X smartphones
Analyst predicts Microsoft will sell its entire phone business within 18 months
Computerworld - As Microsoft announced its largest job cuts ever today, it also signaled a retreat from its low-end Nokia X line of Android phones.
Microsoft said 18,000 jobs will go in the next year; that represents about 14% of the company's 127,000-member work force. A total of 12,500 of the layoffs will come from factory and professional jobs that were part of the Nokia acquisition in April. That acquisition added about 25,000 jobs at Microsoft.
A major impact will be felt in Microsoft's still-fledgling smartphone business, which is mainly powered by Windows Phone. After four years of sales, Windows Phone has garnered less than 4% of the global smartphone market.
Following the company's layoff announcement, analyst Jack Gold, of J. Gold Associates, predicted that Microsoft's phone business will be sold or spun off within 18 months. That follows the pattern Google pursued with the purchase of Motorola's phone business, which it quickly sold to Lenovo.
As a result of the cutbacks, Android phones in the low-end Nokia X line will be killed. Nokia had introduced the line before the handset business was sold in April to Microsoft.
"We plan to shift select Nokia X product designs to become Lumia products running Windows," CEO Satya Nadella said in a letter to workers.
In a separate letter to employees, Stephen Elop, vice president of devices and services and former Nokia CEO, said the shift of Nokia X to Windows Phone will occur immediately, while sales of existing Nokia X products continue.
"We will be particularly focused on making the market for Windows Phone," Elop said, noting that Microsoft would target sales of affordable smartphones within the Lumia line to gain traction in that fast-growing market segment.
But Elop also left room for "great breakthrough products" to win sales in the higher end of the market. Microsoft's separate smart devices and mobile phones business units will be combined into one phone business, he added.
Most of Microsoft's phone production will occur in Hanoi, with some continuing in Beijing and Dongguan, China, Elop said. There will be a phased exit of phone production from Komaron, Hungary, he said.
Phone engineering will be concentrated in Finland as it was under Nokia. High-end Lumia products will be developed in Salo, Finland, affordable products, in Tampere, Finland.
Elop also said the devices team will continue to design and build tablets, resulting in "limited change" to the Surface tablet team and those building Xbox devices.
Despite the new focus on phones at Microsoft, Gold said Microsoft faces big challenges. Even if Microsoft were to grow its share of the smartphone market to 5% globally, that would represent nearly 50% growth from its current share of about 3% to 3.5% -- a daunting task, Gold said.
Refocusing Nokia phones away from the X brand is a "sound strategy...but is unlikely to be very successful in greatly increasing market share," Gold said. He called it a "first step down the path of making the phone business saleable," which could happen within 18 months.
Carolina Milanesi, chief of research at Kantar WorldPanel, said Microsoft's new strategy with phones and devices appears to be "go cheaper, to go wider" which she explained means having more lower-end products and getting into more wireless carrier product portfolios.
While Microsoft has been rumored to be designing a smartwatch to compete with Google and perhaps Apple, Milanesi said a smartwatch is not a top priority now. "Future products like a smartwatch depend on how they all fit into Nadella's strategy, but considering their focus is on productivity and platform and services, it would seem to me that something like a smartwatch would not be a key priority."
Matt Hamblen covers mobile and wireless, smartphones and other handhelds, and wireless networking for Computerworld. Follow Matt on Twitter at @matthamblen or subscribe to Matt's RSS feed. His email address is firstname.lastname@example.org.
- Chinese officials seize Microsoft PCs, emails, financial info in antitrust probe
- Chinese regulators target Microsoft for office visits
- Layoffs cool Microsoft employees' opinion of CEO Satya Nadella
- How Microsoft's CEO sees growth for Windows Phone and Lumia
- Microsoft wants you to forget Windows 8
- Microsoft again writes off Surface inventory, renews profitability doubts
- 'Nadella Effect' makes Ballmer $2.8B richer
- Microsoft reveals bankruptcy of devices strategy by dumping Nokia feature phones
- Microsoft may drag out layoffs for a year
- Surface survives Microsoft cuts, but tablet strategy remains muddled
Read more about Smartphones in Computerworld's Smartphones Topic Center.
- Tips for Driving User Adoption in New Technology Deployment Read this checklist on tips for driving user adoption to see where you stand.
- Agility & Scalability for Oracle EBS R12 and RAC on VMware vSphere 5 This white paper outlines extensive performance and scalability testing of Oracle EBS applications on a Vblock™ Systems with vSphere 5.
- Oracle and VCE: The Next Step in Integrated Computing Platforms In this ESG Lab review you will learn how a VCE system driven by Oracle, delivers the perfect blend of high performance and...
- Migrate Oracle Apps from RISC/UNIX to Virtualized x86 Ready to move Oracle to a virtualized environment? This brief explains how true converged infrastructure can help you migrate from a RISC/UNIX environment...
- Keep Servers Up and Running and Attackers in the Dark An SSL/TLS handshake requires at least 10 times more processing power on a server than on the client. SSL renegotiation attacks can readily...
- On Demand: Mastering the Art of Mobile Content Management Mobile device usage in the enterprise has skyrocketed, and it continues to escalate. IT must answer to users who demand access to their... All Smartphones White Papers | Webcasts
Our new weekly Consumerization of IT newsletter covers a wide range of trends including BYOD, smartphones, tablets, MDM, cloud, social and what it all means for IT. Subscribe now and stay up to date!