It was a dead deal before it was done, now Microsoft has moved to slash 7,800 jobs after new management at the top recognised that the acquisition of Nokia should never have been done.
Steven A. Ballmer, Microsoft’s chief executive at the time, boasted that the deal was a “bold step into the future”, he is no longer CEO of Microsoft who during the past 12 months have already laid off over 12,000 employees.
Several people are expected to be retrenched in Australia.
The new round of layoffs brings the job loss total to over 18,000.
Last night Microsoft’s new executive, Satya Nadella, sought to leave that deal in the past.
He announced a broad rethinking of the company’s phone strategy which some analysts claim is already dead and should be quietly buried as it is always going to struggle up against Android devices and the Apple iPhone.
The move is a clear acknowledgment that the deal was a multibillion-dollar strategic blunder by Mr. Ballmer, who had envisioned it as a way to make Microsoft more competitive in the mobile market dominated by Apple, Google and Samsung. Mr. Nadella is said to have disliked the acquisition originally, though he publicly endorsed it after becoming chief executive.
Microsoft said it would take a $7.6 billion accounting charge related to its acquisition of Nokia’s handset operations. It completed its acquisition of Nokia last year for $9.5 billion, though Nokia came with about $1.5 billion of cash as part of the deal.
“It’s a headache that Nadella inherited,” Daniel Ives, an analyst at FBR Capital Markets, said. “It is really cleaning up Ballmer’s mess.”
This is not the only market where Microsoft is struggling, Sony recently announced that they have snared 80% of the European console gaming market with the PS4 Vs the Microsoft Xbox.
While Microsoft will not stop making smartphones, Mr. Nadella said that the big US software Company who has over $100 Billion in cash reserves around the world would no longer focus on the growth of that business, instead emphasizing the expansion of the broad “ecosystem” of products, including mobile phones, that run its Windows software. Since he took over, Mr. Nadella has increased the development of apps and services for Google’s Android and Apple’s iOS devices, many of which have been popular with the public.
In Australia Microsoft is currently under investigation for their tax avoidance methods. They are also set to face problems with Australian retailers with some already delaying the stocking of new PC’s running Windows 10 after Microsoft announced a free version of the OS as well as the opening of a Sydney based Microsoft shop later this year.
“I am committed to our first-party devices, including phones,” Mr. Nadella said in an email to Microsoft employees. “However, we need to focus our phone efforts in the near term while driving reinvention.”
The company’s retrenchment in smartphones comes as Mr. Nadella, who became chief executive last year, has pulled Microsoft back from initiatives begun by Mr. Ballmer.
Mr. Nadella sent a companywide email in late June intended to rally employees for the coming year. He also warned in the message that Microsoft would need to “make some tough choices in areas where things are not working and solve hard problems in ways that drive customer value.”
Also in June, Microsoft said it was selling its online display advertising business to AOL, as Microsoft exited a business for which it once had high hopes. In 2012, the company signalled how its ambitions in the area had sputtered when it took a $6.2 billion accounting charge related to its acquisition of aQuantive, an online advertising company.
The New York Times said that Microsoft has continued to lose market share in smartphones since acquiring Nokia’s handset business. The company has failed to turn the Windows Phone operating system, which runs on its handsets, into a vibrant alternative to the two leading mobile platforms, iOS from Apple and Android from Google.
Last month, the company said that Stephen Elop, the former chief executive of Nokia who became a senior Microsoft executive after the acquisition, overseeing its devices business, would leave Microsoft.
Rather than catering to all smartphone shoppers, Microsoft said it would narrow its focus to three types of customers: business users who want strong management, security and productivity apps; buyers looking for inexpensive phones; and Windows fans.
There was no mention of consumer with carriers set to drop sales of Microsoft phones in Australia.
Jan Dawson, an analyst at Jackdaw Research, said the Nokia deal forestalled that situation, buying Microsoft another couple of years to find a successful formula in the smartphone market. It is now preparing for the release of a new version of its operating system, Windows 10 that will run on a broad array of devices, including smartphones, PCs, tablets and the Xbox.
Microsoft hopes that having a common foundation among those devices will attract more interest from software developers, which could make its smartphones more appealing to consumers. In the meantime, Mr. Nadella has released versions of its Office applications for Android and iOS that have been hits with reviewers and mobile users, creating a bright spot for its broader mobile business. The prospects for its own smartphone business are still grim, many analysts believe.
“They saved it long enough that they could have another go,” Mr. Dawson said. “But I don’t think it’s going to work.”
