LOS ANGELES -- Microsoft announced the biggest layoffs in its history Thursday, saying it will cut 18,000 jobs as it streamlines its Nokia mobile device business to focus on using the Windows Phone operating system.
Although the job cuts were expected, the extent of the eliminations is a surprise, amounting to 14 percent of the company’s workforce. It’s CEO Satya Nadella’s boldest move since taking the reins from Steve Ballmer in February. Ballmer announced the Nokia acquisition last September, a month after he announced that he would resign.
In a public email to employees Thursday, Nadella said the changes were needed for the company to "become more agile and move faster."
Nadella indicated that Microsoft will largely abandon low-price Nokia Asha phones -- which work on their own non-Windows operating system -- and reverse a strategically questionable move by Nokia in February to launch a line of phones called "X" that supported rival Google Inc.’s Android platform.
"The first-party phone portfolio will align to Microsoft’s strategic direction," Nadella said in the memo. "To win in the higher price tiers, we will focus on breakthrough innovation that expresses and enlivens Microsoft’s digital work and digital life experiences."
Nadella added the changes are "difficult, but necessary."
Of the job cuts, about 12,500 professional and factory jobs related to the Nokia acquisition will be eliminated, including 1,100 in Finland.
Microsoft Corp. expects charges of $1.1 billion to $1.6 billion over the next four quarters, largely for severance payments. The move puts the company on track to meet the target it set in September, when it announced the Nokia purchase, of saving $600 million in annual costs within 18 months after the deal closed.
FBR Capital Markets analyst Daniel Ives said the cuts were about double what Wall Street was expecting.
"Microsoft needs to be a ‘leaner and meaner’ technology giant over the coming years in order to strike the right balance of growth and profitability around its cloud and mobile endeavors," he said.
The move dwarfs Microsoft’s previous biggest job cut, when it cut about 5,800 jobs in 2009. That was the company’s first ever widespread layoff.
Microsoft has been shifting its focus from traditional PC software to cloud computing and cloud-based products like its Office 365 productivity software that can operate on mobile devices.
With its $7.3 billion acquisition of Nokia’s cellphone business, Microsoft had sought to meld its software and hardware business into a cohesive package, similar to rival Apple.
But investors had lingering doubts about the strategy.
Nokia phones ran a wide array of operating systems that weren’t helpful to Microsoft’s core Windows brand. One of the operating systems, Asha, lacked features like the ability to use mobile versions of Office productivity software or even GPS mapping ability.
Soon after the deal was announced, Nokia’s overall handset sales plunged 29 percent in the final quarter of last year, even as its high-end Lumia devices grew quickly.
The Nokia purchase "is not a deal that [Nadella] agreed upon or negotiated or perhaps really wanted," said Scott Kessler, senior equity analyst at S&P Capital IQ. "Secondly it seems that the market has changed pretty significantly over the last year ... pretty traumatic cuts seem probably somewhat appropriate at this point."
In a letter to employees, Executive Vice President Stephen Elop said the company will drive sales of its Windows Phone by targeting the lower-price smartphone market with its Lumia devices.