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Wireless Infrastructure Newsletter

Microsoft decimates Nokia division July 18 2014

Under CEO Nadella's reorganization, 18,000 jobs will go, 12,500 former Nokia employees, as role of devices is squeezed

By Caroline Gabriel

Given the tone of Microsoft CEO Satya Nadella's recent manifesto about the future of Microsoft, which was clearly cool about the acquisition of Nokia's devices business, it came as no surprise that, as the company confirmed one of the biggest programs of layoffs in its history, the handset division was the chief casualty.

Microsoft may be increasingly multiplatform with its cloud applications and mobile enterprise tools - the heart of Nadella's strategy - but it still wants to offer an end-to-end, Windows-based solution for the substantial base of enterprises which trust that approach. Nadella may know that 'Windows everywhere' is no longer a viable strategy, but that doesn't mean Microsoft will not still push its own OS as a superior option, enhancing it and reducing its licensing fees. So the mobile devices strategy, after flirting with Android, will now be refocused entirely on Windows Phone.

Here, Microsoft will pursue a 'bottom-up' approach, seeking to make WP8 a serious competitor to Android on low end devices and attract OEMs in that space, and investing in its hubs in Brazil and Vietnam.

That will involve the axing of the Nokia X Android line, despite recent upgrades to it post-acquisition, and also Nokia's elderly Series 40 platform, which gained its second wind in the past couple of years by powering the Asha range of 'smart featurephones'. The shift to Windows Phone-only does remove confusion for OEMs, and sees Microsoft doing what it should have done all along - optimizing its smartphone OS for the segments where there is still significant growth, in emerging markets where the Nokia brand is still strong.

It is almost certainly too late for Microsoft to gain mass market share for Windows Phone, despite its attractions and differentiated experience, at this stage, and a bolder Nadella might just have killed it - as surely he will one day. After all, if he was serious about being a high volume smartphone maker, he would have stuck with Android and Nokia X. So soon after the acquisition of Nokia, however, it would have angered shareholders to make a complete U-turn, effectively telling them Microsoft had wasted its money. So, like Google with Motorola, Microsoft will hang on for now and seek to extract the jewels from its purchase, such as R&D inputs to Xbox and Surface, its more important hardware activities.

And Android activity will not be dead of course - Microsoft is increasingly releasing business and consumer productivity apps, and web services, for Android and iOS ahead of its own operating systems.

The change of emphasis in devices will cost 12,500 former Nokia employees their jobs, in a total cull of 18,000 staff (14% of the workforce) across Microsoft, designed to meet Nadella's objectives of streamlining and reducing time to market. A memo from Stephen Elop, former Nokia CEO and now head of a much-reduced Microsoft devices kingdom, said that the cellphone unit will now target two markets - "future high end Lumia products" and "more affordable devices". R&D for both lines will be driven out of Finland, from the former Nokia centers in Salo and Tampere.

The high end products - which presumably will, one day, converge with, or replace, Windows RT - will be delivered "in alignment with major milestones ahead from both the Windows team and the Applications and Services Group", which likely means a new version of WP and Office early next year.

At the low end, handset design will focus on "driving Lumia volume in the areas where we are already successful today in order to make the market for Windows Phone", which suggests a concentration of the pared-down resources on Nokia's traditional strongholds such as India, but also on South America via Brazil. Microsoft has new manufacturing hubs in Vietnam and Brazil but will reduce engineering in Beijing and San Diego, though both sites will continue to have "supporting roles", the Chinese team in developing affordable devices in Beijing and the California group in specific US requirements. Two more Nokia centers in Finland, Espoo and Lund, will still operate and will focus on application development, Elop said. Microsoft will shut down the Nokia plant in Hungary, which employs about 1,800 people.

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