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  (Source: 20th Century Fox)
Product development will continue, but staff is substantially diminished from the levels it was at prior to the Nokia acquisition

Microsoft Corp. (MSFT) in July announced it would be embarking on a fresh round of layoffs, which would more specifically involve the "reduction of up to 7,800 positions, primarily in the phone business."

Microsoft billed it as part of a "restructuring process", for its phone hardware unit.  The unit is known for its eye-catching "Lumia" line, a brand which Microsoft has continued following the acquisition of the unit from Finnish former partner Nokia Oyj. (HEL:NOK1V) in Sept. 2013 for $7.2B USD.  When the deal closed in April 2014 hopes were high, but within a couple of months Microsoft had announced drastic layoffs of 18,000 employees, mostly at Nokia.  It's since taken a writedown of $7.6B USD related to the purchase, a writeoff which indicates that it got pretty poor bang for its buck on the deal.

The 7,800 layoffs are a fresh wave of layoffs on top of the previous 18,000.  That's a total of nearly 26,000 employees in two rounds of layoffs.  Microsoft inherited 34,000 employees from Nokia.  With as little as 9,000 or less of those employees destined to keep their jobs in the long term, it's fair to say the inherited Nokia teams at Microsoft have been decimated, a fact that likely has been in part a cause of cancellations of certain high end Lumia models.

Reuters reported Monday that the 7,800 layoffs would include deep cuts not only to manufacturing in Asia, but also cutting 2,300 engineers, designers, and salespeople which are spread across three offices of the Microsoft Mobile Oyj. unit in Finland.  Reuters adds that with the layoffs Microsoft will keep only two of its three offices open.  Offices in Espoo and Tampere, Finland with survive in downsized form, the office in Salo, Finland will disappear.

MIcrosoft factory in Salo
Microsoft's factory in Salo, Finland will be closing for good. [Image Source: Reuters]

Locally these fresh layoffs are having a damaging impact on Finland as a whole -- but especially Salo, where one local described the situation as "hopeless".  Pekka Pekkalathe, communications head for the Finland's prime minister, said that Microsoft was laying off 2 in 3 of its employees in Finland.  He summed up the somber sentiment in a series of Twitter posts: But as sad as the news is for Salo, it could be equally devastating for Microsoft's smartphone plans.  From what I've heard, Microsoft is still hoping to release certain high end Lumias this fall in support of Windows 10, in addition to refreshing the low end line.  But Microsoft's smartphone effort continues to struggle.

Microsoft Espoo
Microsoft's local headquarters in Espoo, Finland (pictured) will stay open, but staff will be greatly reduced. [Image Source: Yle]

In distant third place, Microsoft has but a 3-4 percent share of global smartphone sales, by most estimates.  While it has done well in Europe, Australia, and certain budget markets (particularly South America and parts of Asia and the Middle East), profitability of the Lumia line remains poor.  And without a full fledged line which includes high end and mid-range models to appeal to U.S. consumers, any hopes of trying to battle Apple, Inc. (AAPL) or Google Inc.'s (GOOG) Android are all but dead.

Microsoft has promised a more "focused" Lumia product portfolio, according to sources of Bloomberg.  What that means in practice remains to be seen, but in principle it seems likely to involve cutting the number of largely overlapping SKUs of similar price points and features.

To some degree, this is certainly a needed shift.  Currently the Lumia 430, 435, 530, 535, 630, 635, and 640 as well as various other odd numbered or 'XL' models in the 43X, 53X, and 63X lines have a great degree of overlap in terms of features and price, to the point that it can become quite confusing exactly what the difference is between two models.  Clearly when it's struggling to come up with a full fledged smartphone lineup, spending its precious resources on releasing yet more nearly identical models would be be foolhardy approach.

Bloomberg's source(s) also mentioned dropping out of certain lower selling markets, although which ones might be on the chopping block remains to be seen.  In theory it can't drop out of two of its poorest performing markets -- China and the U.S. -- unless it's quitting the smartphone business altogether.  The U.S. is too critical for influencing global sales (not to mention it's Microsoft's home market).  And China is too big a market to abandon.
Lumia 640 XL
The 5.7-inch Lumia 640 XL

For Microsoft CEO Satya Nadella, the Lumia unit represents a challenging riddle.  If he cuts too much the unit stands little chance of being able to develop a product strategy to elevate (or even continue) the Lumia line.  Without Lumias Microsoft would lose a key selling point and demonstration platform for its smartphone OS efforts.  But on the flip side, with the Lumia unit bleeding money, Microsoft can't afford to keep the unit at its current size (hence the layoffs).

While this is a lose-lose situation Microsoft, it's arguably a win-win for its former partner Nokia.  With Microsoft laying off a large portion of the staff it paid for in Finland, Nokia should be free to scoop up many of those engineers.  And further it should be able to get their labor at lower rates, given the desperation factor that's involved.  Nokia has already launched a tablet powered by Google's Android OS, and appears poised to stage a triumphant return into the smartphone space with Android offerings waiting in the wings for the expiration at the end of 2015 of the company's noncompete agreement with Microsoft.

Nokia can smile.  It may yet get its workforce back at reduced salaries, and have been handed $7.6B USD in cash from Microsoft, for next to nothing in return.  Thus if there's one winner in this mess it's Nokia.

Just how big a loser Microsoft is in it remains to be seen.  That will likely depend on how well the Lumia unit can pick itself up from another staggering round of layoffs.  The Lumia unit must establish a clear strategy for advancing Windows in the smartphone space, or the next round of layoffs may kill the unit off for good.

Ironic side note:

As TechRadar recently reported -- journalists at Finnish newspaper Kauppalehti recently published an intriguing background book entitled Operation Elop.  Among other things, the book claims that back in 2010 Tim Cook -- now Apple's CEO -- was wooed to become CEO of Nokia.  Cook ignored the calls, leading Nokia to ultimately opt to go with Stephen Elop instead.  At the time, the extent of Apple CEO Steve Jobs' health problems wasn't publicly known and Cook likely had no idea that he'd have the opportunity to become CEO of Apple -- a far larger and more successful company -- so soon.  Needless, to say he appears to have made the right choice.

The book alleges that Elop purposefully misled Nokia executives on details of how talks with Google over adopting Android went.  The book paints a pretty one-sided picture showing him as a Trojan Horse, as many accuse him of being.  After steering Nokia into selling its hardware business to Microsoft, Elop would rejoin Microsoft.  He recently retired from the company.




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