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Layoffs raise questions about Nadella's commitment to Nokia deal

Juan Carlos Perez | July 18, 2014
Maybe the new CEO doesn't fully share his predecessor's vision of Microsoft as a maker of smartphones.

Microsoft's 14 percent staff reduction, the largest in its history and focused heavily on employees acquired from Nokia's devices and services business, has some observers thinking Satya Nadella got a bad case of Lumia-induced indigestion.

Where his predecessor Steve Ballmer saw in the US$7.2 billion deal a cure for Microsoft's mobile ills, it's possible Nadella has come to view the acquisition as bad medicine.

When Ballmer and then-Nokia CEO Stephen Elop brokered the deal last year, the vision was that, to improve Microsoft's pitiful mobile market participation, it had to emulate Apple by being in tight control of both the OS and hardware of devices.

Ballmer spent the last years of his tenure saying Microsoft was transforming into a "devices and services" provider. But in his "manifesto" to employees last week, Nadella retired the term, saying the company should focus on being a "productivity and platform" company instead.

After de-emphasizing "devices" last week, Nadella said Thursday that of the 18,000 positions to be cut, "our work toward synergies and strategic alignment on Nokia Devices and Services is expected to account for about 12,500 jobs, comprising both professional and factory workers."

Many have interpreted that to mean that about half of the Nokia employees that came over in the deal will get pink slips, although some of the victims could also be Microsoft staffers in the Devices & Services unit.

Be that as it may, the size of the job cuts has some wondering whether Nadella is second-guessing the wisdom of the acquisition.

Analyst Jack Gold, principal analyst of J.Gold Associates, likened the Nokia deal to Google's purchase of Motorola. Both companies wanted to get a stake in the hardware business but subsequently found that the market is a difficult, low-margin game, he said.

"Perhaps it's not good for [Microsoft] to be in the direct hardware business competing with OEMs," Gold said. He expects Microsoft to either spin out or sell off the phone business within 18 months.

Gold sees the staff cut as a sign that Nadella is steering Microsoft's corporate cart away from the road Ballmer had it on. "Nadella is redirecting Microsoft more towards what it is good at, which is the OS and [to] offer solutions and support OEMs rather than being the next Apple," Gold said.

But IDC analyst Al Gillen isn't certain that the layoffs mean Nadella has soured on the Nokia acquisition. For starters, Microsoft won't say how many of the job cuts will be from the manufacturing staff. It may be that most are, in fact, people whose desk jobs overlap with those of Microsoft staffers. In that case, the layoffs couldn't be interpreted to mean Nadella is repelled by the idea of Microsoft as a smartphone manufacturer.


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