July 8, 2015 Last Updated 9:34 am

Microsoft announces big layoffs, centered in its phone business

The Redmond-based company will take a charge against Q4 2015 earnings ahead of the release of their report later this month

The earnings season is upon us again, and later this month many of the major tech companies, as well as publicly traded media companies, will be announcing their earnings. It is customary to either pre-announce staff cutbacks just prior to a poor earnings report, or that day. Better to do it early.

WindowsPhone-330That may be what is behind today’s announcement from Microsoft that it will be cutting up to 7,800 positions. The cutbacks, not surprisingly, will be centered in its phone business, that continues to struggle.

Stephen Elop, the former head of Nokia, who after Microsoft’s acquisition, rejoined the company as executive vice president, recently said he was again leaving – so today’s announcement will surprise few.

“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,” Microsoft CEO Satya Nadella said in the company’s announcement. “In the near-term, we’ll run a more effective and focused phone portfolio while retaining capability for long-term reinvention in mobility.”

Because of the layoffs, Microsoft will record a charge in its Q4 fiscal 2015 earnings.

Microsoft’s CEO has taken some bold, decisive moves, getting much praise from tech observers. Many think the company is again headed in the right direction. But from a digital publishing perspective, it is hard to see much going on. Of all the major platforms I hear far less from Microsoft (even less than Apple) and the company has several times gone out of its way to give me the impression they would rather not have TNM talk about the Windows platform or its Surface tablets. The group in Redmond continue to be a bit of an enigma.

Here is Microsoft’s announcement:


REDMOND, Wash. — July 7, 2015 — Microsoft Corp. today announced plans to restructure the company’s phone hardware business to better focus and align resources. Microsoft also announced the reduction of up to 7,800 positions, primarily in the phone business. As a result, the company will record an impairment charge of approximately $7.6 billion related to assets associated with the acquisition of the Nokia Devices and Services (NDS) business in addition to a restructuring charge of approximately $750 million to $850 million.

Today’s announcement follows recent moves by Microsoft to better align with company priorities, including recent changes to Microsoft’s engineering teams and leadership, plans to transfer the company’s imagery acquisition operations to Uber, and shifts in Microsoft’s display advertising business that enable the company to further invest in search as its core advertising technology and service.

Today’s plans were outlined in an email from Microsoft CEO Satya Nadella to Microsoft employees.

“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,” Nadella said. “In the near-term, we’ll run a more effective and focused phone portfolio while retaining capability for long-term reinvention in mobility.”

Microsoft will record a charge in the fourth quarter of fiscal 2015 for the impairment of assets and goodwill in its Phone Hardware segment, related to the NDS business. This charge has no impact on cash flow from operations and is nondeductible for income tax purposes. Based on the new plans, the future prospects for the Phone Hardware segment are below original expectations. Accordingly, the company concluded that an impairment adjustment of its Phone Hardware segment assets and goodwill of approximately $7.6 billion is required.

The actions associated with today’s announcement are expected to be substantially complete by the end of the calendar year and fully completed by the end of the company’s fiscal year.

More information about these charges will be provided in Microsoft’s fourth-quarter earnings announcement on July 21, 2015, and in the company’s 2015 Annual Report on Form 10-K.

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