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Microsoft's Lumia 650
Microsoft’s Lumia 650

Microsoft says it will scale back its smartphone hardware business even more, cutting 1,850 additional jobs and taking a $950 million charge as the company pulls back further from its ill-fated $7 billion acquisition of Nokia’s smartphone division.

Microsoft CEO Satya Nadella. (GeekWire File Photo)
Microsoft CEO Satya Nadella. (GeekWire File Photo)

The announcement Wednesday morning reflects the reality of Microsoft’s position in the smartphone market against Apple’s iPhone and devices that run Google’s Android operating system. Windows-powered devices fell to less than 1 percent of the worldwide smartphone market in the latest quarterly stats from the Gartner research firm, while Android climbed to more than 84 percent.

However, Microsoft insists that it isn’t exiting the business or consumer smartphone hardware market entirely, instead saying that it’s “streamlining” its efforts in this area, focusing on phones with management and security features that traditionally appeal to enterprise users.

Microsoft is “scaling back, but we’re not out!” wrote Terry Myerson, executive vice president of the company’s Windows and Devices Group, in an email to employees this morning.

Terry Myerson shows off the Uber app on a Windows Phone device.
Terry Myerson shows off the Uber app on a Windows Phone device in this 2014 Microsoft photo.

Satya Nadella, the Microsoft CEO, said in a news release announcing the cuts: “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.”

It’s Microsoft’s latest move in a broader retreat from the mobile phone and smartphone hardware business, which the company acquired from Nokia for more than $7 billion in 2014.

The deal was put together under former Microsoft CEO Steve Ballmer. Under Nadella, the company retreated from the strategy and said last year that it would narrow its hardware focus to flagship smartphones. Before today’s announcement, the company had cut a total of more than 19,000 jobs associated with the Nokia acquisition.

With the latest news, Microsoft is retreating even further. The company had been rumored to be working on a “Surface Phone,” moving beyond the Lumia lineup acquired from Nokia, but executives never confirmed those plans. In the meantime, Microsoft’s sales of its own smartphones have been plummeting.

devices

Last week, Microsoft agreed to sell its entry-level phone business for $350 million to FIH Mobile Ltd., a subsidiary of Hon Hai/Foxconn Technology Group, and a new company called HMD Global, led by former Nokia and Microsoft mobile executives. That deal will result in the Nokia brand returning on mobile phones and tablets, but this time running Android.

Here is Myerson’s full memo to employees …

To: Microsoft – All Employees
From: Terry Myerson
Date: Wednesday 5/25, 2AM Pacific Time

Subject: Focusing our phone hardware efforts

Team,

Last week we announced the sale of our feature phone business. Today I want to share that we are taking the additional step of streamlining our smartphone hardware business, and we anticipate this will impact up to 1,850 jobs worldwide, up to 1,350 of which are in Finland. These changes are incredibly difficult because of the impact on good people who have contributed greatly to Microsoft. Speaking on behalf of Satya and the entire Senior Leadership Team, we are committed to help each individual impacted with our support, resources, and respect.

For context, Windows 10 recently crossed 300 million monthly active devices, our Surface and Xbox customer satisfaction is at record levels, and HoloLens enthusiasts are developing incredible new experiences. Yet our phone success has been limited to companies valuing our commitment to security, manageability, and Continuum, and with consumers who value the same. Thus, we need to be more focused in our phone hardware efforts.

With this focus, our Windows strategy remains unchanged:

  1. Universal apps. We have built an amazing platform, with a rich innovation roadmap ahead. Expanding the devices we reach and the capabilities for developers is our top priority.
  2. We always take care of our customers, Windows phones are no exception. We will continue to update and support our current Lumia and OEM partner phones, and develop great new devices.
  3. We remain steadfast in our pursuit of innovation across our Windows devices and our services to create new and delightful experiences. Our best work for customers comes from our device, platform, and service combination.

At the same time, our company will be pragmatic and embrace other mobile platforms with our productivity services, device management services, and development tools — regardless of a person’s phone choice, we want everyone to be able to experience what Microsoft has to offer them.

With that all said… I used the words “be more focused” above. This in fact describes what we are doing (we’re scaling back, but we’re not out!), but at the same time I don’t love it because it lacks the emotional impact of this decision. When I look back on our journey in mobility, we’ve done hard work and had great ideas, but have not always had the alignment needed across the company to make an impact. At the same time, Ars Technica recently published a long story documenting our journey to create the universal platform for our developers. The story shows the real challenges we faced, and the grit required to get it done. The story closes with this:

And as long as it has taken the company, Microsoft has still arguably achieved something that its competitors have not… It took more than two decades to get there, but Microsoft still somehow got there first.

For me, that’s what focus can deliver for us, and now we get to build on that foundation to build amazing products.

Terry

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