Microsoft to Further Streamline Its Windows Phone Business

Microsoft this morning announced that it would further streamline its Windows phone hardware business by focusing only on business customers going forward. As a result, it will jettison more jobs, mostly in Finland, and take another charge against earnings.

“We are focusing our phone efforts where we have differentiation, with enterprises that value security, manageability and our Continuum capability,” Microsoft CEO Satya Nadella said in a prepared statement. “We will continue to innovate across devices and on our cloud services across all mobile platforms.”

As a result of this streamlining, Microsoft will reduce its workforce by a further 1850 employees—up to 1,350 jobs at Microsoft Mobile Oy in Finland, as well as up to 500 additional jobs globally, it says—and take an impairment and restructuring charge of approximately $950 million. About 200 million of that amount will be related to severance payments.

Furthermore, Microsoft will record a charge in its fourth fiscal quarter, which ends June 30, for “the impairment of assets in its More Personal Computing segment, related to these phone decisions.” The firm expects these actions to be “substantially completed” by the end of calendar year 2016, and “fully completed” by July 2017.

In a separate letter to employees, which Microsoft provided me with yesterday, Terry Myerson admitted that the company’s Windows phone hardware business has seen only “limited” success.

“We need to be more focused in our phone hardware efforts,” he writes.

But Microsoft’s Windows strategy remains unchanged, he noted. The firm will continue to expand “the reach and capabilities” of Windows 10 devices that can run Universal Windows Platform (UWP) apps. It will “take care of” its customers, in this case by continuing to update and support its current Lumia and partner phones, and by developing “great new devices.”

“We remain steadfast in our pursuit of innovation across our Windows devices and our services to create new and delightful experiences,” Mr. Myerson writes. “Our best work for customers comes from our device, platform, and service combination.”

Still, Microsoft must be “pragmatic” and embrace the mobile platforms that its customers have chosen. “Regardless of a person’s phone choice, we want everyone to be able to experience what Microsoft has to offer them,” he explains.

“We’re scaling back, but we’re not out,” he claims.

Compared to the news of July 2015, this isn’t as earth-shattering, and is simply a further streamlining of the strategy from last year.

More specifically, in mid-2015, Microsoft revealed that it no longer expected to “grow a standalone phone business” and would focus its efforts on three customer segments: business customers, value phone buyers, and Windows enthusiasts. In late 2015, it attempted to reach the latter two markets with the poorly-received Lumia 550 and Lumia 950/950 XL. And the business-oriented Lumia 650 followed in early 2016, garnering more positive reviews.

So today’s news isn’t surprising, and is in some ways a better outcome than last year’s blockbuster changes. Microsoft obviously needs to invest in those areas where it can see success and perhaps even growth, and for phones, that means businesses. But enthusiasts can of course continue to use its Lumia-based Windows phones and even look forward to new devices. It’s not a total loss.

Last year, I wrote that things had gone from bad to worse, and that we collectively had to be realistic about Windows phone’s downward trajectory. This year’s announcement, ultimately, is just more of the same, but it is at least not a wholesale retreat from the business, as some had feared. For fans of Windows phones, that means the platform can continue. And that is of course a much more desirable outcome than the alternative.