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Microsoft Executes Second Round of Layoffs, Cuts 2100 Jobs

Zacks Equity Research

Software developer Microsoft Corporation (MSFT) recently carried out its second round of layoffs, firing 2,100 employees worldwide. As many as 747 were in the Seattle area, while the remaining was from across its global operations and teams. It also shut down Microsoft Research's Silicon Valley lab, which focused on distributed computing and large-scale systems.

Microsoft had announced in July its plans to eliminate nearly 14% of its total workforce i.e. 18,000 employees over the next one year. At the time, Microsoft had nearly 127,000 employees worldwide, which was far more than its competitors, Apple (AAPL) and Google (GOOGL). Microsoft announced these massive job cuts in a strategic move to streamline the cost structure and boost the bottom line.

In the first round of job cuts, Microsoft had laid off 13,000 employees, mostly from the recently-acquired Nokia (NOK) business.

Microsoft intends to eliminate the remaining 2,900 across its global operations over the next nine months.

Trimming its workforce will help Microsoft combat losses due to the persistent decline in worldwide PC sales as a result of the rising demand for smartphones and tablets among consumers and enterprises.

However, Microsoft has offered severance packages to the laid off employees due to which it will have to bear pre-tax charges of $1.1 billion to $1.6 billion over the next four quarters.

But the realignment program is a part of Satya Nadella’s strategic plan to make the decision-making process more efficient by eliminating several layers of management and also aligning operations with its new growth plans. His vision focuses on making the company more agile and faster to concentrate effectively on emerging areas like mobile, wearables, cloud-computing and productivity software, as the software developer goes from a “devices and services” company to a “cloud-first mobile-first” one.

The last time Microsoft announced layoffs was in 2009, when 5% of its workforce was eliminated in order to deal with the recession.

Microsoft shares carry a Zacks Rank #3 (Hold).

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