Last Lifeline from Microsoft to Soon-to-End Lumia Handset Unit - 7,800 more jobs lost and $7.6B written off the books

So that next firing cycle came today at Microsoft. Lumia is dead, has been dead for years. Nadella knows this. He fired Elop earlier and I told you then, that now its on borrowed time and more layoffs were coming and the new VP will get some time for one last attempt to revive this unit.

So today Microsoft announced 7,800 jobs lost mostly from the ex-Nokia handset business. They also write off $7,6 Billion of their Nokia purchase, nearly all of it in fact. Furthermore, they announce that their previous expectations for the handset business are no longer viable, in other words, that the handset business will continue to struggle and now the expectations of returning to profit next year, is unlikely. And they say they are going to have a more 'effective and focused' in their phone portfolio which is lawyer-speak for 'we will offer less variety in phones'. Will that help sell more, of course not. Nadella just wants the bleeding to stop and this is his way, lets cut off nearly half of the remaining staff, and reduce the phone offering, so the damage of the loss-makng unit will be less severe in coming months, before this unit is shut down.

So, first, my condolences to all ex Nokia staff who will lose jobs from these cuts. And my warning once AGAIN that this is not the end, there will be more cuts to come. And that this unit is already dead, it will be shut down or shifted to Surface or other business at Microsoft. The handset dream at Microsoft is still dead. It cannot be revived. It died in 2011 as first reported on this blog. The root cause for the reason why Windows Phone/Windows 10 can never succeed as a smartphone OS has nothing to do with the iPhone or Android, nothing to dio with apps, nothing to do with phones (the phones are pretty good). It is all dependent on the carriers/operators and the distribution channel which said in 2011 that because Microsoft bought Skype, and Skype is the only existential threat to the mobile telecoms business, the operators will not subsidise their own death..This is what then-Nokia CEO said to Nokia sharehiolders and Nadella knows this is what he hears from all his negotiations with major carriers/operators. The same thing Steve Ballmer heard when he was Microsoft CEO and tried this gambit. The operators do want a third ecosystem but they will never accept Windows Phone (Windows 10). Not because it happens to have (or not have) Skype. Its because MICROSOFT owns Skype. Owns the poison that would kill the telecoms operator business. That is why Windows and Lumia will never succeed in smartphones.

I told you first here on this blog in 2011 when Microsoft bought Skype and Elop told you when he spoke to the Nokia shareholders and it is 100% true. The boycott against Windows smartphones started BEFORE there was any Lumia handsets. It started BEFORE there were Skype apps for Windows Phone. And while Android and iPhone have Skype, its not aimed at phone makers who have Skype. Its aimed at MICROSOFT because MS OWNS Skype. Very clear. And all the handset makers who exiteed Windows Phone have said so in more or less clear terms, as have departed Microsoft Windows Phone execs too.

So now we see the final stage of this sad play. Nadella will give one last chance for someone other than Elop to try, with only a very reduced portoflio of handsets and with far less staff, to try the miracle of turning this business around. And they warn publically not to expect profits for more than a year. And yes, as the losses will continue, this unit will be shut down. Now the clock is ticking... From 12 to 24 months i the time-frame when Microsoft exists the phone manufacturing business. And Windows Phone side of Windows 10, I would not count on much R&D ivolvement on this dead path. The next Windows version (I would suggest it might be called Windows 11) will no longer bother to support handsets, only tablets and PCs... 

By the way, a possible shut-down date at Microsoft's remaining phone business might be a little before newly returned real Nokia smartphones on Android start their sales next year, similar to how Elop was fired just before Nokia CEO officially admitted they are coming back to phones..

The sound you heard was the last Windows Phone develoeprs jumping off this sinking ship.

Comments

[Lullz]

I'll copy paste a comment I made earlier today.

"A painted rock with a straw glued on it would have been selling better than Lumia, assuming that Microsoft had nothing to do with it."

[Peter]

> They also write off $7,6 Billion of their Nokia purchase, nearly all of it in fact

Wasn't the purchase $7,2 Billion, i.e. less than they're writing off now?

[Tomi T Ahonen]

Lullz - haha yeah so true

Peter - Microsoft actually recognized more than the purchase price because of payments they were no longer obligated to make to support Nokia etc... so if I remember correctly the book value was about $8 Billion. So about 90% of the (Nokia) handset investment is wiped out.

Tomi Ahonen :-)

[Peter]

Oh right that makes sense! Thanks!

[Peter]

I do really 'like' how some of the bigger media are spinning this as a good thing, as in Microsoft focusing on a narrower line-up is a good thing somehow because it will allow them to focus more on the quality of each device...

[Interested To Know]

What a sad tale...

[Catriona]

This speaks more about Ballmer's shortcomings than Elop's. Microsoft made a lot of strategic blunders and bad acquisitions under Ballmer. As a commenter to a WSJ article pointed out, Ballmer spent $2 billion to buy the LA Clippers, essentially tripling the value of the franchise.

It seems to me that Nadella is in salvage mode with respect to the Lumia line. Since it managed to gain a little bit of traction in, of all places, Europe, Microsoft will keep it around to squeeze some value out of the line. At this point, since they've written off the entire value of the acquisition, anything they can get is a positive. That's essentially the point of this blog post:

http://tumblr.jackdawresearch.com/post/123555349188/microsofts-restructuring-postponing-the

This doesn't bode well for Tizen. I don't care how well it's doing in Bangladesh. The fact that Windows Phone is getting the bottom 10% in markets like Italy and Spain suggests that there is no viable "third ecosystem" (except maybe Android OSP) and the best they can do is sell phones to people who don't care what's inside as long as it makes calls and texts and has basic connectivity. As Android goes further downmarket, it's hard to see how another OS gets even that much in the future.

[cornelius]

@Catriona

WP's relative high market share in Europe in only the result of the fact that Europeans loved Nokia (because it was an European brand). That love not only evaporated when Microsoft bought Nokia but it was replaced with hatred towards Microsoft, the Nokia killer. Lumia now is just another brand of a US tech company. No point in giving it a special treatment. I expect Nokia's re-entry into the mobile market next year to give the final blow to Lumia.

[Tomi T Ahonen]

Peter - haha yeah, no. The lack of success at Microsoft was not because the phone hardware was lacking. It was often top-of-the-line. It was all Windows. As we saw with the last rush of Android based Nokia X series (and Nokia's clear stated interest to return on Android, not return to Windows Phone next year). So a 'better focused' portfolio will not help Microsoft do any better than 'better aerodynamic seats' help in a car that doesn't have an open top and seat aerodynamics cannot help the car go any faster haha...

Interested - yes, totally agree. A tragedy.

Catriona - thanks for the link. Did you read the article? He says clearly that he expects Microsoft to shut down the whole business and this is the logical step in that direction. So you maybe read the article fast and missed that? It totally doesn't support a view that there is any success coming.

As to Italy and Spain (not in that article) - you claim 'a little bit of traction' and I am guessing you are now basing that on some anaysis on some other clueless writer. Are yo aware that on Symbian just before Elop wrecked the Nokia brand smartphone business, Nokia had about 70% market share in Italy and about 55% in Spain? That is DISMAL collapse of the smartphone BASE losing 6 of 7 and nearly 5 of 6 in those markets. That 10% is piss-poor last remnants which vanishes the MOMENT the real Nokia returns to those markets. Those customers are not buying Windows, they are buying Nokia. Yes Italy at 70% and Spain at 55%. From that if you think 10% is 'success' I have a bridge to sell you. There is no success for Lumia in Europe, it is the last remnants of the Nokia empire that once owned the continent and which reverts IMMEDIATELY back to the real Nokia when those phones ship next year. That is why Nadella is in such a hurry to kill the business now as its far less embarrassing to shut it as being a bad purchase by his predecessors that are not profitable, than it is to LOSE to the 'real' Nokia on - worst possible platform rival - Android.

Please don't delude yourself. There is no salvage mode. This is the end-game. Nadella doesn't want to embarrass Bill Gates who blessed the Nokia deal by Ballmer. He wants to appear to have given Lumia its best chance. In reality Nadella hated the whole deal and can't wait to kill it. Note he's already wiped out more than the paid value of the total Nokia purchase and 90% of its book value and fired 80% of the staff that came over. There is no salvage mode, this is death by management.

But I agree Ballmer was a dick (oh, you didn't say that) but yeah, that Ballmer was a hopelessly bad manager and made really bad acquisitions.

Now on you Tizen comparison. What suggests to you that Lumia is at the bottom of the price pyramid? Its nowhere NEAR the cheapest smartphones out there. Windows Phone doesn't run on the bare minimum specs of low cost smartphones at under $100 unsubsidised price. Thats almost all Android with the occasional Firefox thrown in and now Tizen. They are utterly not in the same market, Tizen Z1 and any Lumia. The NEW 'mid range' Tizen Z3 will be overlapping with low-end Lumia yes (assuming they still exist in Microsoft's new lineup, am not so sure).

On 'I don't care how well its doing in Bangladesh' - wow that does sound racist and elitist. You do know Catriona that the USA only accounts for 5% of all mobile phone accounts in the world? And the emerging world now accounts already for nearly 7 of 10 smartphones sold? That India and Bangladesh first 6 month performance, if applied to the Emerging World alone (no Tizen sold in West) would mean 3% market share there and that means globally 2%. Meaning that by the end of the year, if Tizen sold this ONE handset in all Emerging World markets, Tizen would run about the same as Lumia does worldwide.

And from that Samsung announced plans are 3 phones before the end of the year and their recent market expansion included China, Russia and Brazil which is already two thirds of the Emerging World (when adding India & Bangladesh).. This market is global, mobile phone handsets are the first universal technology that totally spans the economic divide of rich vs emerging world. So if you say you don't care about Bangladesh, I ask you to reconsider. This blog is a global market blog and if you only want to examine the US market, you might enjoy not being here.

And I apologize to all my readers who were offended by that remark.

Tomi Ahonen :-)

[Catriona]

Yes, I did read the article. I took it to mean they'll squeeze whatever value they can get from what's left, and then quietly shut it down later. Nadella is more focused on the cloud. What mobile emphasis they have left will be targeted to Office on Android and iOS. The Surface line is evolving more into a PC rather than an iPad competitor.

[Catriona]

And the reason I don't care about Bangladesh is that it isn't a driver of mobile development. Korea and China are leading the charge toward 5G. The U.S. has the only two viable mobile platforms right now. China is the top dog in Asia and when it gets a cold, Bangladesh will get the flu (and China may be getting a cold right now). EU countries have historically been trend setters. So if we are looking to identify global trends, it's unlikely they will come from Bangladesh.

[Crun Kykd]

Microsoft dumping Lumia. Maybe the lesson is you can't buy a core competence, you have to grow it internally. Smartphone expertise was not a homegrown competence, and buying Nokia didn't gain it. Might also explain why their mice, keyboards, and Xbox actually succeeded. And maybe bodes favorably for their hololens plans.

[chithanh]

Nadella wrote: "We'll bring business customers the best management, security and productivity experiences they need; value phone buyers the communications services they want; and Windows fans the flagship devices they'll love."

Note how he only talks about "flagship devices" for Windows fans, and the other two segments get only "experiences" and "communications services"?

@Catriona
5G is all fine and dandy, but only a detail. The important question is how much of one's life is determined by mobile technology, and e.g. mobile microtransactions are further ahead in some African countries even than they are in Europe and the U.S.

[E.Casais]

@Catriona

"the reason I don't care about Bangladesh is that it isn't a driver of mobile development"

I do not know what is really taking place in Bangladesh with respect to mobile development, but I very strongly suggest you take off your blinkers and keep an open mind.

It is a global world. Nowadays, advanced mobile development is taking place everywhere.

After all, the worldwide most advanced markets regarding electronic money and mobile payments are to be found in Africa -- not the USA, Japan or Europe (yes, those "Uganda farmers" using "jungle phones" viewed with so much contempt by you know whom).

In the same vein, just a few years ago commentators (apparently mainly from the USA) on this very blog dismissed China as just an assembly line for mobile phones designed elsewhere, running services implemented elsewhere. Chinese products are now encroaching on the markets of established players all over the world, their services (from Wechat through UCWeb to Beidou) are spreading and becoming serious competitors to better-known brands.

On the other hand, if you have some inside knowledge about what is happening in mobile Bangladesh, you are welcome to provide details. People here would be interested (I sure would).

[Wayne Borean]

I really do have to rip apart Microsoft's latest SEC reports. But I have a novel that needs finishing first.

Microsoft has proven incompetent in any market it does not have monopoly control of. The main concern of 'Microsoft Partners' is how quickly Microsoft will stab them in the back.

[John Fro]

MS took on the task of competing with Apple because of investor demand to achieve those amazing ROI's and sky-high valuations. The investors wanted a piece of the action. Internally, MS couldn't care less about phones--they were relegated to second class status with Win CE software. And, at MS, it's the internal politics that matters, not what investors say. The board is structured more or less to give only a handful of seats to activist investors and minority investor interests. The rest is a mix of old timers and friends of the founders. They people listen to division heads and people from within the company. They essentially treated MS stock like you would a public utility company.

Contrast the willingness of MS to take loss after loss in the XBox division just to keep kids in the MS camp (it would be like GM making bicycles) and not take loss after loss in the mobile division. XBox props up the Windows monopoly and creates a lot of MS fanboys. Mobile does not. Mobile is a cost headache for MS Server and Office too, since they have to provide online services for free to support mobile. Mobile gaming competes with XBox too. This creates a lot of internal enemies. Meanwhile, mobile isn't making money hand-over-fist like it does for Apple. Apple doesn't have these internal conflicts since they are more or less a one-trick-pony entertainment company that sells its own hardware--an American version of Sony, perhaps? (If Sony had any focus in its product lines).

[Crun Kykd]

I think MSFT was very interested in the smartphone market - they just failed. Time to prepare for whatever is next. HW is clearly part of the future (home automation, IoT, resurgent gaming, new displays). They just need to find a role and craft desirable offerings.

As far as focusing on 3rd party HW, it's remarkable how bad historically it has been for hardware developers that partnered with MSFT. They really need to change their SOP there.

[chithanh]

@John Fro
> MS took on the task of competing with Apple because of investor demand

Actually, no. Investors have mostly been critical with Ballmer's costly world domination plans. Bing, Windows Phone, and Surface (only 1 out of 6 a success, the 7th still undecided) are mostly money sinks. An no investor likes that.
Tomi blogged about Sun Tzu, you attack your enemy where he is weak, not where he is strong. Attacking Google in search, Apple in tablets and both in mobile is not something a rational investor would support.

Attacking them in Enterprise, Cloud and Office however is smart, and that seems to be happening now. Before, Microsoft chose to not even show up on iOS and Android.

@Baron95
Remember how Nadella wrote about "tough choices"? Winding down the dumbphone business and cutting associated jobs is not a tough choice, it is inevitable.

[Henrik N]

Well I wonder if I ever will buy a Microsoft product again. My Surface RT will not get Windows 10.
I own a Nokia Lumia 735 to, so now it seems Microsoft will put all the software they got on Android and iOS.

Maybe best to get a Android smartphone and a Chromebook computer.
Atleast Google have a long term plan and stick with it.

[Earendil Star]

Boring comments piling up once again, soon to become 95. By the usual Catrionic softies.

Reality is:
- THT Elop was actually a Flop, as most of us argued on this blog
- A free and covert acquisition of Nokia by MS, potentially priceless, was executed poorly and ended in disaster
- Nokia's sacrifice was in vain
- Elop cried "fire" on Nokia, but the only platform burning was Windows Phone. Only ashes are now left of this WP catastrophe.
- value destruction with what remains of the Nokia acquisition will continue to haunt MS, until all pieces are shed. Having written off the investment will not protect MS from additional and continuing losses being produced by this loss churning unit negative contribution to its bottom line
- maybe we'll see the real Nokia again, but any attempt to reenter the market will be hard and different to what it used to be
- no, MS is not only shedding the dumbphones. The next billion customers, those who will shortly transition to smartphones. This is an admission of defeat across the board. Particularly on smartphones, and especially in the USA. MS is abandoning its mobile devices to focus on the SW side as before, hoping WP10 will stick. Unlikely. OEMs have learnt their lessons.

And, no, I do not believe carriers are the only reason to explain the repulsion WP induces on customers. The interface is lame, clumsy and inefficient, with excessive animations. Live tiles are annoying. Apps are slow and limited in number. Lumia's success in Europe is tied to the Nokia brand. Leave that, and sales will plummet again.

I agree that MS failed its customers because it tried to compete with very strong competitors without being able to leverage its monopoly power. It failed to leverage its strengths, i.e. its ties to the corporate world. In fact, it compromised its Windows cash cow, by imposing this hideous tablet interface, in the attempt to force developers (see Ballmer's video) to support its inefficient, slow and wanting modern apps. Crazy.

Let's hope Satya is able to start anew, and bring out the best from MS, not it's worse as it happened with its previous management.