New York City, New York- (StockNewsDesk) – 07/18/2014 — The computer software giant Microsoft announced on Thursday that the company will be laying off roughly 18,000 employees in a massive bid to restructure and change the company’s work philosophy and culture. The largest layoff in the history of Microsoft will see more than 12,500 employees losing their jobs in Microsoft’s Nokia device division. The demise for Nokia has been slow and painful as it continues to be drawn out and taken apart bit by bit; this also means that the majority of the layoffs will happen in the European regions of Hungary and Finland where Nokia was based. This is only the second time Microsoft has instituted such large, sweeping cuts; in 2009, in response to the global recession, Microsoft cut 5,800 jobs cut in several stages, which amounted to approximately 6% of its workforce at that time.
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The company has promised to offer severance packages and help its employees find greener pastures with job transition assistance. A study conducted in 2010 suggests that Microsoft’s compensation averages $178,159 per employee, almost double the average aerospace worker’s compensation. Ever since Steve Ballmer’s retirement, and the consequent appointment of Satya Nadella, Microsoft’s stock price has grown by a whopping 20%. After the announcement, Microsoft’s stock ended 1% higher. While critics continue to speculate whether the layoff will bring impetus back into the software giant, it can be said with a high level of certainty that this will be received with positivity on the stock market. Microsoft’s wage bill reduction, and re-positioning of its Windows Mobile and Nokia brands are the two factors which will largely drive positive sentiment.
Overall, Microsoft employs 125,000 employees and the massive layoff also took down the Xbox Entertainment Studios division, the studio that brought to life the much acclaimed Halo series. On Thursday, Microsoft announced it was shutting down Xbox Entertainment Studios, a division that helped in creating the original enterprogramst program for the Xbox, though it must be clarified that the future and growth of Xbox remains untouched, it is only the Xbox Entertainment Studios which are being shut down. Microsoft’s shuffling of the pack is an attempt to move into cloud computing and mobile, and get out of devices and services sector. This is a new approach, contrary to Steve Ballmer’s vision of the company, but it would continue to use the Nokia platform to exclusively deliver their Windows based mobiles and no Android related development. The company plans to shift selected Nokia X product designs to its Lumia range, which operate on Windows software, continuing to produce high-end phones while adding more lower-cost Lumia devices in an attempt to boost Windows Phone sales.
Layoffs have been expected ever since Microsoft paid $7.5 billion for the purchase of Nokia’s handset business. As part of that deal, Microsoft also signed up to achieve annual cost savings of at least $600 million for 18 months after the deal closed. Satya Nadella explained the reasoning for layoffs by saying:
“Simplify the way we work to drive greater accountability, becomes more agile and move faster. … In addition, we plan to have fewer layers of management, both top down and sideways, to accelerate the flow of information and decision making.”
As a result of the job cuts, Microsoft expects to incur pretax charges of $1.1 billion to $1.6 billion over the next four quarters, including $750 million to $800 million for severance and related benefit costs, and $350 million to $800 million of asset-related charges. However, the new CEO seems to be in it for the long haul as his strategy seems to have a vision and sense of coherence in a time where being quick is synonymous to being successful.
Bill Gates described Satya Nadella as “no better person to lead Microsoft”, but the jury is still out on his prediction of Microsoft’s only third CEO.
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I’m Dave. A no-frills, high-quality cut-to-the-chase finance writer prepared to make whatever information you’ve needed over the years come to fruition. If it’s conceivable, consider it written. When I’m not contributing time to Stock News Desk, I’m working on several client projects and traveling the Lower 48 states.