Microsoft Drastically Scales Down Smartphone Biz

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Microsoft on Wednesday announced plans to streamline its smartphone business by cutting 1,850 jobs. It will record an impairment charge of US$950 million, with severance payments accounting for $200 million of the charge.

The restructuring will entail up to 1,350 job losses at Microsoft Mobile Oy in Finland, and 500 more cuts around the world.

"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," said Microsoft CEO Satya Nadella. "We will continue to innovate across devices and on our cloud services across all mobile platforms."

"What this is, is an acknowledgment that the overall Windows mobile hardware business has been failing," Ian Fogg, head of mobile analysis at IHS Technology, told the E-Commerce Times.

The move comes just a week after Microsoft announced the sale of its flagging feature phone business to Hon Hai/Foxconn Technology unit FIH Mobile and HMD Global Oy, which in turn will orchestrate Nokia's return to the smartphone arena, which it abandoned after selling its mobile phone business to Microsoft two years ago.

Given that Microsoft's mobile strategy over the past decade for the most part has flopped, the company's ability to grow its mobile business on the enterprise front has generated some doubt.

"They have been trying to break into the enterprise front for more than a decade with no success," said industry analyst Jeff Kagan. "They started out with regular wireless handsets, then moved to Lumia smartphones, then acquired Nokia, but still could not move the needle."

The blame lies in two areas, he told the E-Commerce Times. First, Microsoft could not interest the marketplace with any of its ideas in the mobile space, barely eking out a fraction of market share, compared to Apple's iPhone or Google's Android platform.

"The other area is the fact that Microsoft has never shown respect for their customers and users, whether business customers or consumers," Kagan maintained.

For example, customers are being forced to upgrade from the popular Windows 7 platform to Windows 10, which is meeting resistance, he pointed out.

That will have a negative impact on both the consumer and enterprise market, Kagan predicted.

Further, "the whole point of Windows 10 was to have an integrated system between smartphones, tablets and computers," Kagan observed. "Taking the smartphone out of the picture makes you wonder how a two-legged stool can stand."

Microsoft was unable to crack the mobile operating system nut, suggested Todd Day, senior industry analyst for mobile & wireless at Frost & Sullivan.

Apple's iOS thrived because of its simplicity and elegance, and Google's Android managed to take the most appealing elements of iOS and make them more user friendly, he said.

"Microsoft, on the other hand, has continued to be caught up in the idea that they will try to force customers to try something slightly different -- more like a PC, and in their eyes better," Day told the E-Commerce Times. "If this did not work with Windows Mobile, Windows Mobile 6, [Windows Phone and Windows 10 Mobile] . . . they should have changed their strategy while there was time to fix it."

Most of the cuts will be completed by the end of 2016, and all of the cuts will be completed by July 2017, when the company's fiscal year ends. Microsoft will record a charge during the fourth quarter of fiscal 2016 for the impairment of assets in its More Personal Computing segment.

The company plans to disclose additional information on the charges in its fiscal fourth-quarter earnings announcement in July, as well as in its 10-K report filed with the Securities and Exchange Commission.

David Jones is a freelance writer based in Essex County, New Jersey. He has written for Reuters, Bloomberg, Crain's New York Business and The New York Times.

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