Software maker Microsoft Corporation (MSFT) is reportedly planning to shed 5000 jobs, as it intends to build leaner business processes and integrate Nokia Oyj´s handset unit. Microsoft is expected to soon announce the elimination of jobs, which is apparently the largest since 2009 when it had slashed 5800 jobs.
Microsoft intends to lay off employees, primarily from it sales and manufacturing teams, including its Nokia handset unit and global Xbox team. In April, Microsoft closed the acquisition of Nokia’s Devices & Services Business, now named Microsoft Mobile Oyj for $7.2 billion.
When Microsoft announced its agreement to purchase Nokia last September, it promised to generate annual cost savings of $600 million within 18 months after the closure of the deal. Therefore, it seems that the job cuts in areas where the two companies overlap are a part of the plan to live up to its commitment.
At present, Microsoft has nearly 127,000 employees worldwide, which is far more than its competitors Apple (AAPL) and Google (GOOGL). In 2009, Microsoft undertook a major restructuring action by eliminating 5% of its workforce during the recession period in 2009. In the recent years, Microsoft has made small job cuts, including the elimination of a few hundred employees in 2012 from the marketing and advertising teams.
Research firm IDC anticipates PC shipments of 293.6 million units in 2014. In fact, the decline in the PC industry is expected to continue, declining to 287.3 million in 2018. The continuous decline in PC shipments raises a question about the growth of the PC industry. The decline has badly hurt the business prospects of companies like Hewlett-Packard Company (HPQ) that rely substantially on the sale of PCs. In fact, in May, Hewlett-Packard Co. announced 16000 more cuts on top of 34,000 eliminated already, after witnessing declines in PC sales for the 11th consecutive quarter.
Microsoft is the latest technology business to downsize. Trimming its workforce as part of its internal restructuring will help Microsoft combat losses due to the fall in worldwide PC sales, which have been declining as a result of the rising demand for smartphones and tablets among consumers and corporates. Furthermore, it will help to lower its operating expenses and concentrate more on emerging areas like mobile, wearables, cloud-computing and productivity software.
Microsoft shares carry a Zacks Rank #3 (Hold).