By Ryan Nakashima
The Associated Press
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To: All Employees
Date: July 17, 2014 at 5:00 a.m. PT
Subject: Starting to Evolve Our Organization and Culture
Last week in my email to you I synthesized our strategic direction as a productivity and platform company.
Having a clear focus is the start of the journey, not the end. The more difficult steps are creating the organization and culture to bring our ambitions to life.
Today I'll share more on how we're moving forward.
On July 22, during our public earnings call, I'll share further specifics on where we are focusing our innovation investments.
The first step to building the right organization for our ambitions is to realign our workforce.
With this in mind, we will begin to reduce the size of our overall workforce by up to 18,000 jobs in the next year. Of that total, our work toward synergies and strategic alignment on Nokia Devices and Services is expected to account for about 12,500 jobs, comprising both professional and factory workers. We are moving now to start reducing the first 13,000 positions, and the vast majority of employees whose jobs will be eliminated will be notified over the next six months.
It's important to note that while we are eliminating roles in some areas, we are adding roles in certain other strategic areas.
My promise to you is that we will go through this process in the most thoughtful and transparent way possible.
We will offer severance to all employees impacted by these changes, as well as job transition help in many locations, and everyone can expect to be treated with the respect they deserve for their contributions to this company.
Later today your Senior Leadership Team member will share more on what to expect in your organization.
Our workforce reductions are mainly driven by two outcomes: work simplification as well as Nokia Devices and Services integration synergies and strategic alignment.
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.
In addition, we plan to have fewer layers of management, both top down and sideways, to accelerate the flow of information and decision making.
This includes flattening organizations and increasing the span of control of people managers. In addition, our business processes and support models will be more lean and efficient with greater trust between teams.
The overall result of these changes will be more productive, impactful teams across Microsoft. These changes will affect both the Microsoft workforce and our vendor staff. Each organization is starting at different points and moving at different paces.
Second, we are working to integrate the Nokia Devices and Services teams into Microsoft. We will realize the synergies to which we committed when we announced the acquisition last September.
The first-party phone portfolio will align to Microsoft's strategic direction. To win in the higher price tiers, we will focus on breakthrough innovation that expresses and enlivens Microsoft's digital work and digital life experiences.
In addition, we plan to shift select Nokia X product designs to become Lumia products running Windows.
This builds on our success in the affordable smartphone space and aligns with our focus on Windows Universal Apps.
Making these decisions to change are difficult, but necessary. I want to invite you to my monthly Q&A event tomorrow.
I hope you can join, and I hope you will ask any question that's on your mind.
Thank you for your support as we start to take steps forward in evolving our organization and culture.
Although the job cuts were expected, the extent of the eliminations is a surprise, amounting to 14 percent of the company’s workforce.
It is CEO Satya Nadella’s boldest move since taking the reins from Steve Ballmer in February.
Ballmer announced the Nokia acquisition last September, a month after he announced that he would resign.
In a public email to employees Thursday, Nadella said the changes were needed for the company to “become more agile and move faster.”
Nadella indicated that Microsoft will largely abandon low-price Nokia Asha phones — which work on their own non-Windows operating system — and reverse a strategically questionable move by Nokia in February to launch a line of phones called “X” that supported rival Google Inc.’s Android platform.
“The first-party phone portfolio will align to Microsoft’s strategic direction,” Nadella said in the memo.
“To win in the higher price tiers, we will focus on breakthrough innovation that expresses and enlivens Microsoft’s digital work and digital life experiences.”
Nadella added that the changes are “difficult but necessary.”
Of the job cuts, about 12,500 professional and factory jobs related to the Nokia acquisition will be eliminated, including 1,100 in Finland.
Some 1,350 Seattle-area workers around Microsoft’s Redmond headquarters were also notified Thursday, as were 1,800 workers in Hungary.
Microsoft Corp. expects charges of $1.1 billion to $1.6 billion over the next four quarters, largely for severance payments.
The move puts the company on track to meet the target it set in September, when it announced the Nokia purchase, of saving $600 million in annual costs within 18 months after
the deal closed.
FBR Capital Markets analyst Daniel Ives said the cuts were about double what Wall Street was expecting.
“Microsoft needs to be a ‘leaner and meaner’ technology giant over the coming years in order to strike the right balance of growth and profitability around its cloud and mobile endeavors,” he said.
The move dwarfs Microsoft’s previous biggest job cut, when it cut about 5,800 jobs in 2009. That was the company’s first-ever widespread layoff.
Microsoft has been shifting its focus from traditional PC software to cloud computing and cloud-based products like its Office 365 productivity software that can operate on mobile devices.
With its $7.3 billion acquisition of Nokia’s cellphone business, Microsoft had sought to meld its software and hardware business into a cohesive package, similar to rival Apple.
But investors had lingering doubts about the strategy.
Nokia phones ran a wide array of operating systems that weren’t helpful to Microsoft’s core Windows brand.
One of the operating systems, Asha, lacked features like the ability to use mobile versions of Office productivity software or even GPS mapping ability.
Soon after the deal was announced, Nokia’s overall handset sales plunged 29 percent in the final quarter of last year, even as its high-end Lumia devices grew quickly.
The Nokia purchase “is not a deal that [Nadella] agreed upon or negotiated or perhaps really wanted,” said Scott Kessler, senior equity analyst at S&P Capital IQ.
“Secondly, it seems that the market has changed pretty significantly over the last year . . . pretty traumatic cuts seem probably somewhat appropriate at this point.”
In a letter to employees, Executive Vice President Stephen Elop said the company will drive sales of its Windows Phone by targeting the lower-price smartphone market with its
A separate memo by a Microsoft executive in India posted by the BGR website said the company will stop engaging with developers on new apps for Nokia X, Asha and Series 40 phones but maintain support for customers who own the phones.
In a blog post a week ago, Nadella hinted at the move, saying Microsoft had to “change and evolve” its culture for the “mobile-first and cloud-first world.”
Nadella said Thursday that he would give more details when Redmond-based Microsoft reports fiscal 2014 results Tuesday.
He also will address staff at a monthly question-and-answer session today.
The cut was huge for Microsoft, the biggest in its 39-year history, but the company will still end up larger following the Nokia acquisition, which added about 28,000 employees to a total of 127,000 in June.
The reduction would bring that down to 109,000, about 10,000 higher than a year ago.
In comparison, Hewlett-Packard Co., another tech giant buffeted by declining PC sales, is in the process of cutting 50,000 jobs from the 350,000 it had in May 2012.
Shares of Microsoft rose 70 cents, or 1.6 percent, to $44.79 in morning trading. The stock is up nearly 20 percent since the beginning of the year.