The planned cut of 18,000 employees at Microsoft Corp. (MSFT) will hit hardest the 25,000 or so employees that joined the company as a result of the the Nokia smartphone acquisition. Using an average salary and benefits figure of $150,000, the 18,000 job cuts will save Microsoft about $2.7 billion a year.
In a long memo to Microsoft staff written last week, CEO Satya Nadella telegraphed staff cuts now that Microsoft had added some 25,000 new employees as part of the acquisition of the smartphone business from Nokia Corp. (NOK). Thursday the number of Nokia employees was chopped in half, and another 5,500 or so employees will also be fired over the next year. The 18,000 planned cuts will trim Microsoft's total employee count from more than 120,000.
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Microsoft will take a pretax charge of $1.1 billion to $1.6 billion over the next four quarters, including up to $800 million for severance and benefit costs and up to another $800 million for asset-related charges.
According to a memo from Stephen Elop, the Nokia facilities in Salo and Tampere, Finland, where the high-end Lumia and low-end products, respectively, are designed will survive and likely grow. Engineering work at Oulu will be ramped down as will engineering efforts in Beijing and San Diego. Plants in Espoo and Lund in Finland will continue to develop application software for the company.
Elop also noted:
It is particularly important to recognize that the role of phones within Microsoft is different than it was within Nokia. Whereas the hardware business of phones within Nokia was an end unto itself, within Microsoft all our devices are intended to embody the finest of Microsoft’s digital work and digital life experiences, while accruing value to Microsoft's overall strategy. Our device strategy must reflect Microsoft's strategy and must be accomplished within an appropriate financial envelope.
In another memo from Nadella posted today, the CEO said:
[W]e are working to integrate the Nokia Devices and Services teams into Microsoft. We will realize the synergies to which we committed when we announced the acquisition last September. The first-party phone portfolio will align to Microsoft's strategic direction. To win in the higher price tiers, we will focus on breakthrough innovation that expresses and enlivens Microsoft's digital work and digital life experiences. In addition, we plan to shift select Nokia X product designs to become Lumia products running Windows.
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That means the Nokia X phone running the Google Inc. (GOOG) Android operating system is history.
Neither Elop nor Nadella had anything to say about either the Xbox group or the MSN group. The 5,500 employees who will get the ax in addition to those from Nokia have to come from somewhere.
Microsoft stock continued to trade higher by about 0.6% in the late morning, at $44.34, after posting a new 52-week high of $45.70 shortly after the opening bell. The stock's 52-week low is $30.84. Volume was approaching double the daily average of around 28 million shares traded.