Microsoft CEO's New Memo: There's More to It Than Job Cuts

U.S stocks are flat on Thursday morning following a disappointing June housing-starts number, which came in 13% lower than the consensus estimate. The benchmark S&P 500 and the narrower Dow Jones Industrial Average (DJINDICES: ^DJI  ) have budged less than 0.1% as of 10:25 a.m. EDT. In company-specific news this morning, shares of Microsoft (NASDAQ: MSFT  ) are up 2.3% following an announcement from CEO Satya Nadella that the Redmond, Wash., software giant will shed 18,000 jobs -- more than 14% of its workforce.

In reviewing Microsoft CEO Satya Nadella's 3,100-word "mission statement" memo last week, I concluded that "you can't rate a leader on a sweeping vision alone; the difference comes down to its execution." Mr. Nadella echoed that thought in another companywide memo sent this morning, in which he gets down to brass tacks, writing: "Having a clear focus is the start of the journey, not the end. The more difficult steps are creating the organization and culture to bring our ambitions to life."

In today's memo, Mr. Nadella laid out one of those difficult steps: Microsoft will shed 18,000 jobs over the next six months. This is only the second companywide restructuring in the company's history, and it is by far the largest; in 2009, Microsoft eliminated 5,800 positions, or roughly 5% of its workforce at the time. Job losses were expected after Mr. Nadella emphasized last week that the company had to become flatter and more agile.

Of the 18,000 total job losses, Nokia Devices and Services -- the unit formed through the acquisition of Nokia's handset business -- will contribute 12,500, or half the number of employees who had joined Microsoft as a result of the acquisition.

While most media reports are focusing on the job cuts, there are some other interesting clues one can glean from this latest memo.

"Devices and services" is out; it's all about "productivity and platform"
In announcing a major corporate reorganization a year ago, former CEO Steve Ballmer coined the expression "devices and services" as the focus of the realignment. However, Mr. Nadella is putting his stamp on the company, and he is now referring to Microsoft as a "productivity and platform company." The inclusion of "productivity" emphasizes the goal, rather than the means: Increasing people's productivity -- in a broad sense -- is what Microsoft promises to do for its customers (in fact, Nadella wrote last week that he wants nothing less than to "reinvent" productivity).

Doubling down on Windows Phone
Microsoft may be cutting jobs from its Nokia Devices and Services unit, but it is absolutely committed to first-party hardware and the Windows Phone operating system. Nadella writes that he wants to "win the higher price tiers." Furthemore, the mid-tier Nokia X smartphones will become Lumia products (another Nokia brand). This will entail switching from the Nokia X platform -- based on Google's Android operating system -- to the Windows Phone OS. I'm far from convinced that Microsoft has the right culture, know-how, and positioning to give Samsung and Google a run for their money in the smartphone space, but the strategy is set.

Microsoft will provide more details of its reorganization on July 22 when it announces its corporate results -- stay tuned.

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