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Microsoft Scales Down Phone Business, Lays Off 7,800

Microsoft on Wednesday announced a major restructuring in its phone hardware business that includes the loss of 7,800 positions.

The restructuring and job cuts are expected to be "substantially" completed by the end of this calendar year and fully complete by the end of the fiscal year, June 30, 2016, Microsoft said.

Microsoft also announced a $7.6 billion impairment change against the value of the assets associated with the acquisition of the Nokia Devices and Services division. In effect, that charge will be 5 percent higher than the reported $7.2 billion value of the original deal, which closed in April 2014. Microsoft will also take a restructuring charge of $750 million to $850 million.

"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," Microsoft CEO Satya Nadella said in a company e-mail Wednesday morning. "In the near-term, we'll run a more effective and focused phone portfolio while retaining capability for long-term reinvention in mobility."

There was no indication that the moves would affect Microsoft's other first-party hardware, such as Surface, Xbox, HoloLens or Band.

The cuts come in addition to the 18,000 layoffs Microsoft announced last year, although some observers have noted that those layoffs seem to have resulted in a smaller actual reduction of headcount, from about 128,000 in June 2014 to roughly 118,000 as of this March.

Microsoft picked up about 25,000 employees in the Nokia acquisition.

The layoff and write-down news follows Nadella's companywide e-mail last month that warned of "tough choices in areas where things are not working."

Microsoft has struggled to gain share in the critical smartphone market both before and after the Nokia acquisition. Stephen Elop, the onetime Microsoft senior executive who went to Nokia to become CEO and then returned to Microsoft in the acquisition to run the hardware business, was among the senior executives whose departures were announced in an executive reorganization last month.

Elop's devices group was combined with the operating systems group to create a Windows and Devices Group (WDG) to be run by Terry Myerson. Despite the moves on the hardware side, mobile devices remain a key piece of one of the design pillars of Windows 10 -- being an operating system for which developers can write once and target a range of form factors, from smartphone to tablet to PC to conference room screen.

Microsoft will release more information about the changes in its fourth-quarter earnings announcement July 21 and in the company's 2015 Annual Report and Form 10-K. Microsoft's Fiscal Year 2016 started last week.

About the Author

Scott Bekker is editor in chief of Redmond Channel Partner magazine.

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