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Microsoft Targets Hardware Business With 7,800 Job Cuts

Microsoft will once again sharpen its blade to cut up to 7,800 employees, primarily in its phone business, as it continues to pursue a tighter mobile-first, cloud-first strategy.

Microsoft will once again sharpen its blade to cut up to 7,800 employees, primarily in its phone business, as the company continues to pursue a tighter mobile-first, cloud-first strategy.

’We are moving from a strategy to grow a stand-alone phone business to a strategy to grow and create a vibrant Windows ecosystem including our first-party device family. … In the near term, we’ll run a more effective and focused phone portfolio while retaining capability for long-term reinvention in mobility,’ said Microsoft CEO Satya Nadella in a statement.

Microsoft partners, for their part, applauded the cuts as pivotal to the Redmond, Wash.-based company's long-term strategy of pushing cloud services on varying mobile platforms.

[Related: Microsoft's Elop, Penn Departing In Latest Executive Leadership Reshuffling]

"I think that since Nadella's been [at Microsoft] he's had a very clear strategy that he wants to pursue … so you'd expect some collateral damage around personnel to reshape Microsoft for the way he wants to go," said Dave Powell, vice president of managed and cloud services at TekLinks, a Birmingham, Ala.-based Microsoft partner. "It seems clear that Microsoft's going back to its roots of being a software company … with Microsoft-based apps around other platforms like Office on Apple and Android. So I think they're making the right moves."

As a result of the cuts, Microsoft said it will record an impairment charge of approximately $7.6 billion related to assets associated with the acquisition of the Nokia business in addition to a restructuring charge of approximately $750 million to $850 million.

Microsoft's Nokia smartphone division, which the company acquired in a $7.2 billion deal, has been struggling in a hyper-competitive smartphone market. Shipments of smartphones powered by Windows Phone are expected to slip to a mere 3.2 percent market share in 2015, according to market research firm IDC.

The report comes a month after the company stated it would sell its online display advertising group to AOL, and faced a series of internal restructurings that led to four key executives' departures, including Stephen Elop, the executive vice president of Microsoft's Devices group.

These recent moves show the company is zeroing in on its "core strength" of software, say partners.

"As a Microsoft partner I think the publicity of new layoffs is a temporary sting," said Robby Hill, founder and CEO of HillSouth, a Florence, S.C.-based Microsoft partner. "If the new round of layoffs are tied to the Nokia acquisition then they are a sign that the company is really focusing on its core strengths. Looking forward to seeing a consistent message relayed to partners and customers that Microsoft is aligning everything in its business to deliver on long-term growth in the rapidly growing cloud space."

While Microsoft's hardware business may be struggling, the company has stayed constant in the mobile space by pushing its productivity software apps, like Office, onto various Android and iOS platforms.

In March, for instance, the company unveiled an extended collaboration with Samsung to deliver pre-installed services for consumers with Android devices.

"Microsoft needs to do what's best for them," said Ric Opal, vice president at Peters & Associates, a Microsoft partner in Oakbrook Terrace, Ill. "Microsoft, as well as [Microsoft] partners, have to be focused on driving value today and making sure they are in the best possible position for the long-term profitability of their company."

The New York Times, which talked to anonymous sources briefed on the plan, stated the cuts will be in addition to the 18,000 employees the company said it would let go a year ago.

Microsoft has about 118,000 employees globally as of June, according to the company's website.

"While the cuts will be painful for employees, they were necessary, in our view, and speak to Nadella's attempt at cleaning up part of the mess that [Steve] Ballmer left behind in Redmond, as the Nokia acquisition was a head-scratcher to begin with, in our opinion," wrote FBR Capital Markets analysts Daniel Ives and James Moore in a flash report on the layoffs, . "Overall, we believe Nadella's proactive approach at cleaning up the Nokia acquisition is a positive "tipping of the hand" around Microsoft's future focus on software (versus hardware) as the company heads into a pivotal year, with Windows 10 front and center as a major product catalyst."


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