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Microsoft shrinks smartphone ambitions with mobile restructuring

Blair Hanley Frank | July 9, 2015
Translation from corporate speak: The Nokia acquisition has been an extremely costly disaster.

The news comes a year after Microsoft first announced a massive round of layoffs that primarily hit employees it acquired from Nokia. Over the past year, the company cut 18,000 jobs across multiple divisions. Around the same time, Nadella told analysts on Microsoft's fourth quarter earnings call that he wanted any hardware efforts to tie into Microsoft's overall strategy.

"However, we're not in hardware for hardware's sake, and the first-party device portfolio will be aligned to our strategic direction as a productivity and platform company," he said.

The changes feel like an acceptance of reality on the part of Microsoft's leadership team. Windows Phone currently occupies a distant third position in terms of smartphone market share worldwide, behind Android and iOS. While Microsoft has tried to drive adoption of its mobile operating system by making software and hardware improvements, it has been unable to shake the overall dominance of its two largest competitors in the mobile market. As of May 2015, Windows Phone made up just 3 percent of the U.S. market, according to a report by ComScore. By comparison, iOS and Android combined made up 95.6 percent of the market.

At least for right now, Microsoft is continuing to push Windows as a smartphone OS, thanks to its development of Windows 10 Mobile. It's also not getting out of the smartphone market just yet, despite today's cuts. But it's clear that Nadella doesn't see phone manufacturing as nearly as important to the company's ambitions going forward, and so he's drastically shrinking that businesses.

It's part of Nadella's push to streamline the company's efforts and move away from working on things that aren't core to Microsoft's business. Last week, the company revealed that it sold part of its Bing Maps team and technology to Uber, and sent part of its display advertising business to AOL. The strategy changes are oriented towards creating a leaner Microsoft. The Microsoft CEO told employees in a companywide letter last month that there were "tough choices" ahead for the company. It's unclear if today's move is the last in that series, or if there's still more to come.

 

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