Microsoft realigning workforce

image credit: Robert Scoble

Microsoft Corp. (NASDAQ:MSFT) said it will eliminate as many as 18,000 jobs, the largest round of cuts in its history, as Chief Executive Officer Satya Nadella integrates Nokia Oyj’s handset unit and slims down the software maker.

The restructuring, amounting to about 14 percent of its workforce, includes 12,500 Nokia factory and professional positions -- half the number of employees added in the acquisition. At Microsoft, cuts will be in sales, marketing and engineering. The reductions are expected to be completed by June 30, 2015, and will result in a pretax charge of $1.1 billion to $1.6 billion, Microsoft said in a statement today.

Nadella, who took over from Steve Ballmer in February, is retooling the company’s structure as it seeks to compete with nimbler rivals offering mobile and Internet-based software and services. He’s also working to wring a promised $600 million in annual savings from Microsoft’s Nokia deal, which added 25,000 workers in April, bringing the total to about 127,100.

“Microsoft needs to be a leaner tech giant over the coming years in order to strike the right balance of growth and profitability around its cloud and mobile endeavors,” said Daniel Ives, an analyst at FBR Capital Markets & Co. who rates Microsoft stock the equivalent of a buy.

The shares rose 2.9 percent to $45.35 at 8:40 a.m. in early trading in New York. They had advanced 18 percent this year through yesterday.

Streamline management

The company will start with 13,000 cuts today and the majority of eliminated workers will be notified in the next six months, Nadella said in an e-mail to employees. The company will also have fewer layers of management and will make changes to its outside vendor staff, he said.

“The first step to building the right organization for our ambitions is to realign our workforce,” he wrote.

Last week, in his first mission statement, Nadella said the Redmond, Washington-based software maker needs to become more focused and efficient and requires changes to its engineering teams. He pledged updates on the new plans later this month, and said he would provide more details when the company reports earnings on July 22.

Microsoft investors are likely to view the cuts as a positive sign, illustrating that Nadella is trying to get costs and headcount under control and that he understands the challenges facing Microsoft, Ives said.

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