Microsoft is to consolidate its former Smart Devices and Mobile Phones business units into one phone business unit to align with the company’s new platform and productivity strategy.
The new strategy, which was revealed by Microsoft CEO Satya Nadella during a speech at Microsoft’s Worldwide Partner Conference this week, includes a focus on integrating Microsoft’s phone business group with the Nokia Devices and Services unit it acquired in April 2014.
“It is particularly important to recognise that the role of phones within Microsoft is different than it was within Nokia,” said Stephen Elop, executive vice president of Microsoft Devices Group, in an e-mail to employees. “Whereas the hardware business of phones within Nokia was an end unto itself, within Microsoft all our devices are intended to embody the finest of Microsoft’s digital work and digital life experiences, while accruing value to Microsoft’s overall strategy. Our device strategy must reflect Microsoft’s strategy and must be accomplished within an appropriate financial envelope.”
To align with its productivity strategy and simplify its operational structure, Microsoft will focus on driving Windows Phone volume by targeting the more affordable smartphone markets with Lumia devices. In addition to the planned portfolio, the company intends to deliver additional lower-cost Lumia devices by shifting select future Nokia X designs and products to Windows Phone devices. This shift is expected to occur immediately.
To achieve success in the higher price segments and enrich the Windows application ecosystem, Microsoft aims to deliver breakthrough products that align with innovations developed by both the Applications and Services Group and the Windows team.
“We will ensure that the very best experiences and scenarios from across the company will be showcased on our products,” said Elop. “We plan to take advantage of innovation from the Windows team, like Universal Windows Apps, to continue to. In the very lowest price ranges, we plan to run our first phones business for maximum efficiency with a smaller team.”
Microsoft’s new phone business unit will be led by Jo Harlow and managed by key members from both the Smart Devices and Mobile Phones teams. This team will be responsible for the Lumia products, the transition of select future Nokia X products to Lumia and for the ongoing operation of the first phone business.
Each sales market approach will be determined according to local market dynamics, the ability to profitably deliver local variants, current Lumia momentum and the strategic importance of the market to Microsoft.
While the Microsoft plans to ramp down its engineering efforts in the Finnish city of Oulu, the company will focus its high-end Lumia phone engineering efforts in the Finnish cities of Salo (for future high-end Lumia products) and Tampere (for more affordable devices).
Engineering efforts in Beijing and San Diego will also be reduced, although both sites will continue to support affordable devices in Beijing, China, and specific US requirements in San Diego. Espoo in Finland and Lund in Sweden will continue to focus on application software development.
Hanoi in Vietnam is expected to become the company’s premier site for phone production, while some production efforts will continue in Beijing and Dongguan in China. Other manufacturing and repair operations will be moved to Manaus in Brazil and Reynosa, Mexico. The company will also carry out a phased exit from Komaron, Hungary.
“We will focus on driving Lumia volume in the areas where we are already successful today in order to make the market for Windows Phone,” said Elop. “With more speed, we will build on our success in the affordable smartphone space with new products offering more differentiation. We’ll focus on acquiring new customers in the markets where Microsoft’s services and products are most concentrated. And, we’ll continue building momentum around applications.”
A total of up to 18,000 positions will be eliminated over the next year, while around 12,500 professional and factory positions will be lost as a result of restructuring the Devices and Services business. All changes are expected to be substantially complete by 31 December 2014 and fully completed by 30 June 2015.
“The team transferring from Nokia and the teams that have been part of Microsoft have each experienced a number of remarkable changes these last few years,” said Elop. “We operate in a competitive industry that moves rapidly, and change is necessary. As difficult as some of our changes are today, this direction deliberately aligns our work with the cross company efforts that Satya has described in his recent e-mails. Collectively, the clarity, focus and alignment across the company, and the opportunity to deliver the results of that work into the hands of people, will allow us to increase our success in the future.”
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