Where will the new Microsoft put its focus? Expected job cuts will provide clues

Microsoft is believed to be ready to cut thousands of jobs this week as part of management's attempt to focus on areas where the company can win. Which teams are likely to take the brunt?
Written by Mary Jo Foley, Senior Contributing Editor

Microsoft is expected to cut thousands of jobs, most likely this week, just ahead of its Q4 fiscal 2014 earnings report next week.

Expectations are the Nokia handset division, which Microsoft officially acquired earlier this year, will bear the brunt of the cuts. (Microsoft acquired 25,000 Nokia employees as part of that transaction, adding to its workforce of close to 100,000.) Beyond those possible cuts, Microsoft also may cut more jobs in marketing across the company, Bloomberg reported on July 14, as it did in 2009 when it shed more than 5,000 employees.

Microsoft CEO Satya Nadella is working to focus the company on fewer, key areas where it has a better chance of winning. The areas where Microsoft is trumpeting its wins at this week's Worldwide Partner Conference are largely in the cloud -- with Azure, Office 365, Dynamics CRM Online -- and Office, Windows Server and business intelligence/SQL Server on premises.

The areas where Microsoft is struggling right now -- in terms of market share, positioning or both -- are in Windows on non-PC form factors (in other words, Windows 8, not Windows 7), Windows Phone (both hardware and software), Surface tablets and Xbox consoles.

Some on Wall Street, such as its newest board member, ValueAct's Mason Morfit, are believed to be in favor of Microsoft sticking to its enterprise software and services knitting. Things like tablets and gaming consoles don't have the meaty margins that software and cloud services do, they argue.


But Microsoft officials continue to publicly espouse the belief that Microsoft needs to be a player in both consumer and enterprise because -- as Chief Operating Officer Kevin Turner told Microsoft's resellers this week at the partner show -- customers are "dual users" with intertwined home and business lives.

Microsoft is in the midst of attempting to pivot and remake itself as a "productivity and platforms" company, rather than a devices and services company. That change is more than semantic. In the post-Ballmer Microsoft, hardware is interesting only insofar as it "lights up" productivity software and services.

Does that mean Microsoft will or should offload its hardware-focused businesses and leave the building of gadgets and appliances up to its OEM partners? I think many on Wall Street would say yes, but Microsoft management still seems to be saying, at least for now, no.

So if you're Microsoft management, where do you make cuts if you're trying to pare Microsoft down to core businesses where it has the best chance of winning?

Do you continue along the low-cost, high-volume path, which has been where Microsoft traditionally has focused? In the case of Windows Phone, that might make sense, given the bulk of Microsoft's success with that platform has been with cheaper smartphones, not higher-end flagship Lumia phones. If that's your plan, things like an Android phone running Microsoft software and services make more sense.

Or do you shift gears and focus on offering premium software, services and hardware like Surface tablets and Perceptive Pixel large-screen touch displays? Leave the race to the bottom to Android vendors and focus on finding ways to upsell users on more premium hardware, software and services?

I don't know which way Microsoft will go. I'm thinking the expected layoffs -- based on what the company has done in the past when it has cut jobs -- won't result in many entire product lines or divisions being axed. (And at least some of those cut are likely to end up in new roles at Microsoft if the past is any indication.) But the cuts should provide more of an indication of where this "productivity and platforms" company will focus in 2015 and beyond.

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