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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.

Or it might be that Microsoft still hasn't completely decided who is leaving yet, Gillen said, noting that the first 13,000 cuts will happen over the course of six months and the full round will take 12 months to complete. Another thing to keep in mind is that Nokia would have had to downsize even if its Devices & Services division hadn't been acquired by Microsoft, according to Gillen.

Frank Gillett, from Forrester Research, highlighted the decision to shift future designs of the low-end Nokia X phones from Android to Windows Phone, branded as Lumia products, saying it shows that the job cuts aren't only to eliminate redundancies but also to adjust Nokia "on a narrower scope."

"They're reconfiguring the focus, purpose and scope of what they're doing with handsets," Gillett said.

It's hard to say how much less interested in devices Nadella might be. The layoffs may simply mean an outsourcing of the manufacturing from inside of Microsoft to third-party partners. It's also worth noting that this round of layoffs will have little or no impact on the teams working on other Microsoft hardware, like the Xbox console, the Surface tablet and the Perceptive Pixel large displays.

Gartner's Merv Adrian said devices remain a critically important part of Microsoft's strategy. "I don't think Satya is abandoning devices and services at all. What he was stating [in last week's letter] was a higher-order point of view about Microsoft's vision, asking: 'Why do we have devices and services? What are we after?'" he said.

According to Adrian, Nadella wants to make clear that devices aren't an end in themselves, but rather vehicles for Microsoft to deliver its new productivity experiences for people's personal and work lives, driven by the company's cloud computing products, like the Office 365 software-as-a-service email and collaboration suite, and the Azure platform- and infrastructure-as-a-service wares.

The other job cuts will come primarily from the Microsoft side, apparently an attempt to eliminate a layer of management fat across several departments. "There's centralization going on at Microsoft," said analyst Ray Wang, founder and chairman of Constellation Research. "There's a lot of operational overlap. They're trying to figure out how to reorganize all of this."

It's important to note that Nadella said Thursday that Microsoft isn't freezing its overall hiring, but rather will add employees in other areas. This means that, after the smoke clears, Microsoft may end up with a net staff reduction that is smaller than 18,000, although how much smaller isn't clear.

"If you look at the job boards, they're ramping up," Wang said of Microsoft's hiring, adding that Nadella is looking to improve Microsoft's mix of skill sets.


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