In acknowledgement of its own unsuccessful venture, today Microsoft has announced plans to make 7,800 redundancies and write down the value of their Nokia acquisition by $7.6bn.
This news follows the departure of former Nokia head, Stephen Elop (feature above), from Microsoft three weeks ago.
These redundancies come on the heels of last year’s layoffs which saw over 18,000 roles at the company cut.
In explanation, and his second staff-memo in as many months, Nadella told employees “We are moving from a strategy to grow a standalone phone business to a strategy to grow and create a vibrant Windows ecosystem including our first-party device family.”
But Microsoft only acquired Nokia in 2014, so why are they slashing Nokia now?
The first thing to remember is that the acquisition was the previous CEO Steve Ballmer’s (also featured) move. Although Microsoft had made a serious effort to find a place in the market for their mobile products, they ultimately failed to challenge Apple’s runaway iPhone success.
Nadella was not a supporter of the initial acquisition in the first place, so we should not be surprised to see him pull the plug on the project now that he has established himself in the CEO role. The direction that Nadella has been steering Microsoft has been overwhelmingly towards a mobile-first philosophy, with revenue being driven by software sales.
Selling mobile hardware seems not to have fitted in with Nadella’s vision: a vision which, so far, has been working well. MSFT stocks have risen nearly 17 percentage points since Nadella took the helm.
The mobile hardware market
Microsoft isn’t the only company failing to successfully launch hardware and software together in phone-format. No one has really been able to challenge Apple’s dominance of the mobile market’s profits. Even though the Android operating system has driven the most revenue, this is because the operating system is given away to phone manufacturers who then compete to put it in the best handset.
This leaves Apple, who have a monopoly over their own iPhone operating system, free to charge it at a premium; a premium people are willing to pay due to the popularity of the iPhone product. Therefore Apple can run much better margins over other systems as long as their operating system is preferred by consumers with enough money to take their pick.
Check back regularly for more developments and comment on this breaking story.