The Microsoft Job Cuts That Really Matter: 5,500 Non-Nokia Layoffs

7/17/14Follow @curtwoodward

Microsoft’s largest-ever layoffs seem like a massive change in direction by new CEO Satya Nadella, who is leading an overdue corporate makeover at the pioneering technology company.

But the smaller numbers tell the real story, and we’re not entirely sure what that means just yet.

The headline for today’s layoff announcement is Microsoft cutting up to 18,000 jobs over the next year. The company plans for the large majority of those cuts to happen by the end of 2014.

The largest chunk of those jobs, however, is coming from the company’s newly acquired Nokia smartphone unit: about 12,500 people, or half the employees that Microsoft said it was adding when the $7.2 billion deal closed this spring.

As Bloomberg noted in the run-up to today’s layoff announcement, Microsoft had committed to some $600 million in yearly cost cuts in the 18 months after completing the Nokia buyout. Less than three months later, we’re seeing where a lot of those savings will come from.

So, instead of considering this a massive blow to the Microsoft workforce, most of the job cuts look like a final adjustment in the Nokia deal. After running the numbers, Nadella and company only needed half the Nokia group that it got. It sucks if you’re in Finland, but that’s an expected and pretty reasonable corporate decision.

The number that really matters, then, are the non-Nokia people being whacked in this round of layoffs. That will be up to 5,500 employees. And we’re not entirely sure where those people will come from, but there are some early clues.

First of all, Microsoft says about 1,300 jobs will be cut in the Puget Sound region surrounding its headquarters in Redmond, WA. That’s about 3 percent of the roughly 43,000 people Microsoft employs in its hometown. The company declined to say how many jobs would be cut in other metropolitan areas.

There are also some good clues about the kinds of non-Nokia jobs that are being cut. Nadella himself recently said newer methods of software development make it less crucial to have a separate team of engineers running tests after developers finish their work, as Bloomberg’s Dina Bass pointed out.

GeekWire’s Todd Bishop, a longtime Microsoft reporter in Seattle, reports that the company’s Operating Systems division may be “slightly harder hit by the first wave of cuts” than the company’s two other major areas, Online Services and Cloud & Enterprise.

In his letter to employees about the job cuts, Nadella also mentioned a push to modernize engineering work and added that the company will have “fewer layers of management, both top down and sideways, to accelerate the flow of information and decision making.” He also mentioned business process and support staff, along with contractors. Taken together, that’s a decent outline of where to look for the most important job cuts.

There’s one other interesting note about the Microsoft cutbacks, and it involves a crosstown competitor.

Amazon has been a force in cloud computing over the past few years, and Microsoft is aggressively trying to compete with its own Azure service, to the point where Microsoft is now announcing when big AWS users migrate over to its side of the fence.

Amazon also has been increasing its focus on computing devices, first with the Kindle Fire tablet and, most recently, its own smartphone. Microsoft has a lead in this area, but it’s still a bit player compared to Samsung and Apple.

With that backdrop, it’s pretty interesting to note the two companies’ employee growth.

While Microsoft is refocusing its efforts and shedding jobs, Amazon appears to be growing with no end in sight. Amazon already has more than 124,000 employees worldwide—more than Microsoft following these layoffs—and is rapidly building out a huge urban campus expansion that is remaking the face of downtown Seattle.

The latest estimates put Amazon’s Seattle workforce at about 18,000, and the company could add another 12,000 jobs in the city once its three new office towers are complete in the next few years. If I were a betting man, I’d say some of those newly laid-off Microsofties will be able to find jobs at the Seattle area’s other technology giant.

Curt Woodward is a senior editor for Xconomy based in Boston. Email: cwoodward@xconomy.com Follow @curtwoodward

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  • coloneltcb

    I have a friend with two kids who works at Nokia. I’ll let him know that his layoff doesn’t really matter. He’ll be so relieved!