May 25, 2016 11:16 am
Microsoft to take 950m dollars writedown on smartphone business
Daniel Thomas, Telecoms Correspondent
Microsoft will further retreat from its disastrous attempt to crack the global smartphone market, announcing plans to cut back its operations that will incur another writedown of about 950m dollars from the former Nokia business.
The US company said on Wednesday that it would “streamline” its smartphone hardware business acquired from Nokia for 7.2bn dollars in 2014, leading to the loss of another 1,850 jobs.
An impairment and restructuring charge of 950m dollars , of which 200m dollars will relate to severance payments, will need to paid in the fourth quarter.
Many of the cuts will happen in Finland, where Microsoft kept Nokia’s former design and manufacturing teams, in a further blow to the country’s ailing economy.
Microsoft has already written down 7.6bn dollars from its mobile phone operations, and laid off 7,800 staff, which means that the total writedowns have far exceeded the original cost of acquiring the Nokia business.
The move was seen by analysts as the end to Microsoft’s ambitions to become a major force in mobile devices in spite of its insistence that it was not exiting the smartphone business entirely.
Microsoft already accounts for less than 1 per cent of global smartphone sales, according to analysts, although it continues to sell a number of phones under the Lumia brand.
Last week, Microsoft agreed to sell the feature phone business that it acquired from Nokia two years for 350m dollars to Foxconn, the Taiwenese manufacturer. About 4,500 employees will transfer from Microsoft.
“We are focusing our phone efforts where we have differentiation — with enterprises that value security, manageability and our Continuum capability, and consumers who value the same,” said Satya Nadella, Microsoft chief executive.
“We will continue to innovate across devices and on our cloud services across all mobile platforms.”
Analysts took Mr Nadella’a comments as a signal that Microsoft would focus more on the corporate market — where it can bundle mobile devices with its PCs and software — rather than the consumer sector.
Juha-Pekka Helminen, a former director of strategy at Nokia, said on Twitter: “So now the final hit. I predicted two years ago that they would kill phones mid-2016. Pretty accurate . . . So this was Microsoft’s mobile first strategy.”
Microsoft expects to cut 1,350 jobs at Microsoft Mobile in Finland, as well as up to 500 additional jobs globally. Employees working for Microsoft Oy, a separate Microsoft sales subsidiary based in Nokia’s home town of Espoo, are not part of the planned reductions.
Terry Myerson, executive vice-president of Microsoft’s Windows and Devices Group, told employees that the company would continue to “develop great new devices,” adding that it was “scaling back, but we’re not out”.
Former chief executive Steve Ballmer made a bold bet two years ago that Microsoft could revive the ailing Nokia smartphone business, but that decision has come back to haunt the US tech company under his successor Mr Nadella.
The acquisition was meant to answer criticism that Microsoft had been too slow to see the growing importance of mobile working among its core corporate clients, as well as the boom in smartphones among consumers. But most people had already moved to either Apple or Google Android-based devices in developed markets by the time Microsoft completed the acquisition. That effectively shut the group out from the mainstream market, given its insistence on selling Windows-based devices.
Meanwhile, businesses have become more comfortable with their employees bringing their own devices to work, which has curtailed the the potential market for corporate sales.
Ben Wood, analyst at CCS Insight, said that Microsoft’s ambitions were finished in the consumer devices market.
“The writing has been on the wall for some time for Microsoft’s remaining consumer devices business. All the focus will be shifting to the enterprise market, led by the Surface team in the US, where Microsoft will need a smartphone option no matter how small.”