Current Microsoft CEO Satya Nadella is very pragmatic. He’s trying to focus the company on clear growth opportunities and areas where there’s existing momentum. Hence yesterday’s memo and press release, writing down the value of the Nokia mobile devices acquisition and announcing significant layoffs:
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.
This followed an earlier Nadella “tough choices” memo a couple of weeks ago that warned, “We will need to innovate in new areas, execute against our plans, make some tough choices in areas where things are not working . . .”
Tough choices part one was Microsoft’s transfer the company’s map-imaging operations to Uber and the outsourcing of its display advertising business to AOL. The Nokia write-down and layoffs are part two. It’s not clear if there will be a part three.
It has however been clear for some time that, unlike Surface which has finally turned a corner, Microsoft’s Windows Phone strategy was not working — if market-share is the measure of “working.” It has had some success in Europe and with lower-cost devices but failed to move the needle in markets like the US and China.
Nadella however is not quitting the mobile hardware business. The company is going to narrow and simplify its handset lineup. Nadella also says the company will shift focus away from a “stand-alone” mobile strategy to a focus on the totality of the Windows ecosystem. He also wants to colonize Android and iOS with lots of Microsoft apps.
Here’s the key passage from the release:
“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.”
Beyond making fewer devices it’s not entirely clear what this means on a practical level. Microsoft previously said it wants to make it easier for iOS and Android developers to port their apps to Windows broadly. This is a continuation of its long-existing “universal” Windows apps approach. Regarding its short-term mobile focus, Microsoft says it will target “business users who want strong management, security and productivity apps; buyers looking for inexpensive phones; and Windows fans.”
The first category, business users, will likely prove an ongoing challenge. While IT managers may prefer to manage Windows across devices, employees are now firmly living in a BYOD world.
Beyond the massive write-down, in one sense there’s little new in Nadella’s memo. He’s said before that Microsoft is trying to better align resources and revenues. Most interesting perhaps is that the write-down amounts to a rebuke or repudiation of the strategy behind the Nokia acquisition and Steve Ballmer’s decision to buy the Finnish-company’s devices unit for in excess of $7 billion before leaving the job.
Nadella is to be commended for being frank and taking decisive action. However the restructuring doesn’t necessarily directly address or advance the company’s position in mobile.
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