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May 26, 2016

Microsoft to slash 1850 jobs as Nokia smartphone unit continues to struggle

News: More than two-thirds of the planned job cuts are expected to take place in Finland.

By CBR Staff Writer

Technology giant Microsoft is set to cut 1,850 jobs as part of efforts to streamline its smartphone hardware business.

The company will incur an impairment and restructuring charge of around $950m as a result of the restructuring. Of the total cost, nearly $200m will go towards severance payments.

Microsoft chief executive officer Satya Nadella said: "We are focusing our phone efforts where we have differentiation – with enterprises that value security, manageability and our Continuum capability, and consumers who value the same.

"We will continue to innovate across devices and on our cloud services across all mobile platforms."

More than two-thirds of the planned job cuts are expected to take place at Microsoft Mobile Oy in Finland. The remaining layoffs will be across its offices globally. Overall, 1,350 employees are estimated to lose their jobs in Finland.

However, the planned reductions will not impact the employees working for Microsoft Oy, a separate Microsoft sales subsidiary based in Espoo, according to the company.

Microsoft said: "As a result of the action, Microsoft will record a charge in the fourth quarter of fiscal 2016 for the impairment of assets in its More Personal Computing segment, related to these phone decisions."

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The company expects a significant part of the layoff process to be complete by the end of the calendar year and fully completed by July 2017, the end of the company’s next fiscal year.

Microsoft said that the development of the Window 10 platform and support for Lumia phones will remain intact, without giving any details on whether it would develop a new Windows phone, Reuters reported.

The company sold its entry-level feature phones business for $350m earlier this month.

In February, a report said that Microsoft was planning to shut down two mobile-phone manufacturing facilities in Beijing, China, cutting 9,000 jobs. The plants were run by Nokia before it was acquired by Microsoft.

Beijing Youth Daily cited a source familiar with the matter as saying that the company was looking to move some of the manufacturing operations to Vietnam.

The closing down of facilities in China was part of the company’s 18,000 job cuts announced earlier. The massive layoffs were considered as the biggest in the Microsoft’s history.

After acquiring Nokia in a $7.2bn deal in 2013, Microsoft had closed many facilities and retrenched thousands of employees due to increased competition in the smartphone segment.

Microsoft reported a 6% decline in its revenue to $20.5bn for the March quarter on year-over-year basis. Sales of Microsoft Office products and cloud services for business grew by 7% in constant currency driven by Office 365 revenue growth of 63% year-over-year.

While the company’s cloud services and Office 365 revenues grew at a decent rate, the revenue from Intelligent Cloud, which houses the Azure cloud, only grew revenue by 3%, up 8% in constant currency, to $6.1bn.

Despite Azure revenue growing by 120% in constant currency and usage of both Azure Compute and Azure SQL database more than doubling year-over-year, this is actually a decline from 140% growth from the last quarter.

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