AAA  Jul. 17, 2014 12:02 PM ET
Microsoft cutting 18,000 jobs, signals new path
By RYAN NAKASHIMA, AP Business Writer THE ASSOCIATED PRESS STATEMENT OF NEWS VALUES AND PRINCIPLES 
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In this photo taken July 3, 2014, a worker walks past a Microsoft Corp. sign outside the Microsoft Visitor Center in Redmond, Wash. Microsoft on Thursday, July 17, 2014 announced it will lay off 18,000 workers over the next year. (AP Photo Ted S. Warren)
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(AP) — Microsoft announced the biggest layoffs in its history Thursday, saying it will cut 18,000 jobs or 14 percent of its workforce as it streamlines its Nokia mobile device business to focus on using the Windows Phone operating system.

The news sent Microsoft's stock up nearly 2 percent in morning trading.

Although the job cuts had been expected, the extent of them was a surprise. It's the boldest move by CEO Satya Nadella since he took the reins from Steve Ballmer in February. In a public email to employees Thursday, he 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, 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. Some 1,350 Seattle-area workers around Microsoft's Redmond, Washington headquarters were also notified Thursday, as were 1,800 workers in Hungary.

Microsoft 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.

But he said they were necessary to streamline operations and clean up a bloated management structure.

"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.

With its $7.3 billion acquisition of Nokia's cellphone business, Microsoft has been is seeking to meld its software and hardware business into a cohesive package, similar to rival Apple. 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.

A separate memo by a Microsoft executive in India posted by the BGR website said the company will stop engaging with developers on new apps for Nokia X, Asha and Series 40 phones, but maintain support for customers who own the phones.

In a blog post a week ago, Nadella hinted at the move, saying Microsoft had to "change and evolve" its culture for the "mobile-first and cloud-first world."

Nadella said Thursday that he would give more details when Redmond, Wash.-based Microsoft reports fiscal 2014 results on Tuesday. He will also address staff at a monthly question-and-answer session on Friday.

Shares of Microsoft rose 67 cents, or 1.5 percent, to $44.75 in morning trading. The stock is up nearly 18 percent since the beginning of the year.

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AP Business Writer Mae Anderson in New York contributed to this report.

Associated Press
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