Microsoft CEO Satya Nadella sent around an email to employees last week. For those reading between the lines it was a clear message that job cuts were coming. Today they made it official. Microsoft will cut up to 18,000 jobs in the coming months.
I think he's doing what needs to be done, and I suspect this will setup Microsoft to be more successful in mobile and cloud services.
I've been following the technology sector for a long time. Usually when a company announces major job cuts it means they are in trouble, but it would be a sweeping generalization to say this is always the case. I remember when BlackBerry (then Research In Motion) announced a significant round of cuts back in the early 2000s. Analysts and investors freaked out. But in reality the company was just cleaning house as it prepared for even faster growth. The business went on to hit incredible new highs. Job cuts are not always a bad sign.
It's also very common for companies to cut staff after a major acquisition. Remember that of the 18,000 job cuts Microsoft announced a full 12,500 are coming from the Nokia division. Within Nokia many of these are likely to be factory positions because the vast majority of Nokia's hardware was not yet running Windows Phone. There isn't really any point in making feature phones anymore, so Microsoft is doing what needs to be done.
Usually in these types of transactions the seller wants to look good and structures the deal such that all layoffs are the responsibility of the big, bad buyer. So I'd practically ignore the 12,500 Nokia job cuts because they are obvious and something Stephen Elop would have had to do anyway if Nokia stayed independent.
So that leaves about 5,500 core Microsoft job cuts, or about 5% of the company's workforce excluding Nokia. This really doesn't amount to much of a cut, does it?
And we're already seeing evidence that these cuts are, at least in part, focused on the operating systems group. I think this makes sense. Nadella doesn't talk about desktops. He talks about mobile and cloud. Given the long history of Microsoft's dominance in the old world of the desktop OS they almost certainly have far more employees than they need.
If Microsoft is going to excel in mobile applications and services tied to the cloud then they need to refocus their energy. Today's announcement is probably just the first move. I wouldn't be surprised of more cuts come later.
Money-wise, this will cost the company between $1.1 and $1.6 billion. At the midpoint of the range it works out to about $75,000 per employee. This is very typical in all of the layoff rounds I've seen announced in my years following stocks. Considering Microsoft has a market value of $372 billion as of this writing, the cost of these layoffs are inconsequential.
Naturally, we wish all affected employees the best possible outcome.