Microsoft has been developing software for smartphones and related mobile devices since they were called PDAs. But Google and Apple dominate the space these days, and the market share for Windows Phone devices has fallen quite a bit in recent years. So Microsoft decided to take a page out of Apple’s book and start producing its own phones.

The company acquired Nokia’s smartphone division last year for over $7 billion. Apparently the company hasn’t really made back that money in sales… because now Microsoft has announced it’s cutting about 7,800 jobs, mostly in the phone business. The company is also recording an impairment charge of $7.6 billion in assets and up to another $850 million in restructuring charges.

lumia 640 xl

In other words, a year after taking over Nokia’s smartphone business, Microsoft is taking a write-off for a figure that’s even higher than the acquisition cost, which suggests that revenue from Lumia smartphone sales hasn’t been stellar in the past year.

That said, Microsoft isn’t giving up on smartphone software or hardware.

Microsoft will continue trying to tempt phone makers to use its software, but it hasn’t had much luck in that area in the past few years. So it makes sense for the company to either get out of the smartphone business altogether (which is a scary thought for a company like Microsoft at a time when traditional PC shipments have plateaued, but smartphone shipments continue to climb) or to sell its own phones.

Microsoft plans to launch Windows 10 Mobile this fall, along with new phones that will run that software. At least one device is expected to be a high-end device that supports Microsoft’s new Continuum for Phone feature, allowing you to connect an external display, keyboard, and mouse to run mobile apps such as Word, PowerPoint, Excel, and Outlook as if they were desktop apps.

But Microsoft acknowledged that “future prospects for the Phone Hardware segment are below original expectations,” which basically means the company had been hoping to sell more phone than it’s actually selling… and now Microsoft doesn’t expect that to change in the coming year. That’s why Microsoft is taking a big write-off.

Over the past year most of the new device we’ve seen from Microsoft’s Lumia phone division have been entry-level devices though. That makes sense, since entry-level devices are still in high demand in developing markets where not everyone who wants a phone already has one. Google has been targeting these same markets with its Android One initiative, while Mozilla has been working with phone makers to offer handsets running Firefox OS in similar markets.

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7 replies on “Microsoft cuts thousands of jobs in phone division, will continue making phones”

  1. I think it will be interesting to see what kind of devices they come out with. I have a Lumia 920 and it’s a great phone as long as you don’t need specific apps that it does not have. The basics and more are there. I’ve tried iOS, Android, BB, FirefoxOS, FireOS and Windows Phone. Windows Phone is the one I prefer at the OS level.

    I think they could do okay if they follow their Surface model of creating a very good solid device and focusing on that versus outputting seemingly dozens of similar, cheap, low end devices. If they can differentiate it with Windows 10 features (Hello, Cortana, Continuum), maintain the good camera optics of the high end Lumias, create a build that rivals other high end phones, improve their distribution ability and keep the price competitive I think they could carve out a niche in which they can continue making phones. If they can then get OEMs to license Windows 10 mobile they wouldn’t need to churn out low end phones. BLU and Yezz tried to participate, but I don’t think they did very well especially since the low end was crowded with a lot of Lumia 4xx/5xx/6xx/7xx/8xx models.

  2. “The company acquired Nokia’s smartphone division last year for over $7 billion. Apparently the company hasn’t really made back that money in sales…”

    That would be pretty incredible if they had! One of the best investments in history! 😉

    1. One metric for purchase is look at the revenue for a 10 year period and use that as the purchase price.

    2. It’s not atypical for a company to be bought for 1.5x it’s annual revenue.

      1. But the language I quoted almost indicates that they expected to make all that back in one year.

  3. I’ve been hearing about these products for years now, it’s been hyped as being just around the corner. Ubuntu for phones and tablets and Windows 10 for every type of device. Brad, I missed reading your article before, explaining Windows Continuum. Until they start selling an actual product it’s just, vapor ware. I’m especially disappointed in Ubuntu considering that Google has proven that their’s a market for a cross platform OS. Android for phones, tablets notebooks/chromebooks and the pc.

    1. But Microsoft seems to have same problem as Intel, to change focus on other market as their traditional business.
      It is not only Nokia which have had problem to change focus,from their established market, when the mobile business changed from feature phones to smartphones.

      Large corporation seems to have same problem, to change focus from established business to something new.
      Kodak which invented the digital cam for public could not change focus
      when the chemical film for photography was outcompete by digital cam tech.

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