There’s a lot of positive energy flowing through Microsoft these days. The company by all accounts won E3 with the unveil of a new 1TB Xbox One console, a swanky new “Elite” wireless Xbox One controller, and backwards compatibility support for Xbox 360 games. And we can’t forget the July 29 release of Windows 10, which is the highly anticipated follow-up to Windows 8.1.
However, there are also a few dark clouds heading towards Microsoft’s Redmond, Washington headquarters and they are zeroing in on the company’s smartphone division. Microsoft today announced another round of job cuts, this time totaling 7,800 employees. This is on top of the 18,000 cuts that it already announced last year. As of March 2015, Microsoft had 118,000 employees globally.
Microsoft CEO Satya Nadella hinted at rough seas ahead in a companywide email sent to employees late last month, stating, “We will need to innovate in new areas, execute against our plans, make some tough choices in areas where things are not working and solve hard problems in ways that drive customer value.”
Microsoft CEO Satya Nadella
In addition, Microsoft recently sent four executives packing — Nokia CEO Stephen Elop, Microsoft Business Solutions head Kirill Tatarinov, Advanced Strategy Chief Eric Rudder, and Chief Insights Officer Mark Penn. “We are aligning our engineering efforts and capabilities to deliver on our strategy and, in particular, our three core ambitions,” said Nadella at the time. “This change will enable us to deliver better products and services that our customers love at a more rapid pace.”
Microsoft's smartphone business has been perhaps its most high-profile stumbling block, which the company acquired from Nokia for just over $7 billion last year. As we reported earlier this week, Microsoft’s U.S. smartphone market share has fallen to use 3 percent (for the three-month period ending in May) compared to 43.5 percent for iOS and 52.1 percent for Android according to the latest analysis from comScore. Globally, Microsoft is faring even worse with a 2.5 percent share of the smartphone market in Q1 2015 according to research firm Gartner.
Microsoft is also taking a huge $7.6 billion "impairment charge" on its Nokia acquisition. The company also announced an additional restructuring charge of $750 to $850 million.
Microsoft Lumia 640 XL
It also doesn’t help that while competitors have been dishing out beautiful, high-margin flagships like the Apple iPhone 6, Samsung Galaxy S6, LG G4, and HTC One M9, Microsoft has flooded the market with low-end, low-margin devices like the Lumia 540. Even Windows Phone devices from Microsoft’s partners, like the LG Lancet, leave much to be desired.
Microsoft has a chance to help stem the losses in its mobile division with the release of Windows 10 Mobile and its upcoming Lumia 940 and 940 XL smartphones, but damage may have already be too extensive to repair. The chance of Microsoft falling into irrelevancy like BlackBerry is far greater than the company suddenly finding lighting in a bottle to credibly take on the likes of Google and Apple in the smartphone sector.
“We are moving from a strategy to grow a standalone phone business to a strategy to grow and create a vibrant Windows ecosystem including our first-party device family,” Nadella said. “In the near-term, we’ll run a more effective and focused phone portfolio while retaining capability for long-term reinvention in mobility.”