Microsoft is cutting out emerging markets, not just jobs

Microsoft’s recent round of swingeing job cuts will see 18,000 staff laid off. A significant proportion of this number – around 12,500 - comes from the handset business formerly owned by Nokia that Microsoft acquired earlier this year.

The cuts are intended to “simplify [Microsoft’s] organisation and align the recently acquired Nokia Devices & Services business with the company’s overall strategy”, according to the firm. Microsoft took on around 30,000 staff with the acquisition of the Nokia unit, so the job cuts will affect over a third of these positions.

The cuts signal the end of any attempts by Microsoft to develop and target devices specifically for emerging markets, something that was a core part of the Nokia mission. New Microsoft CEO Satya Nadella said in an email to staff that the firm was aiming to “win in the higher price tiers” by “focus[ing] on breakthrough innovation that express and enlivens Microsoft’s digital work and digital life experiences”.

To make it absolutely clear what this means, not only has the entire Nokia feature phone business - including the Asha range - been slated for the chop, but also the Android-based Nokia X line. Announced only four months ago, the Nokia X range were affordable smartphones targeted towards emerging markets. The recently-released Nokia X2 was poised to make a splash in the Indian market by capitalising on Nokia’s strong brand loyalty in the space.

With Android devices from rival manufacturers rapidly closing in on the psychologically significant US$100 price point and recent announcements from Google of heavily subsidised Android One smartphones, Microsoft may indeed be right to let the Symbian-powered Asha go. But the depth of brand loyalty towards Nokia must surely make the Nokia X decision harder to justify. To say nothing of the competition that Microsoft faces from Apple et al in the “higher price tiers”.

Nadella noted that the X line would be integrated into other areas, saying that “select Nokia X product designs [will] become Lumia products running Windows. This builds on our success in the affordable smartphone space and aligns with our focus on Windows Universal Apps.”

Former Nokia CEO and current head of devices at Microsoft Stephen Elop noted that it is “particularly important to recognise that the role of phones within Microsoft is different than it was within Nokia. 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.”

Although the Nokia X brand will cease to exist, certain products will continue as part of the Lumia line, with the two former Nokia units of Smart Devices and Mobile Phones being merged into one.  According to Microsoft the unit will oversee “the success of our Lumia products, the transition of select future Nokia X products to Lumia and for the ongoing operation of the first phone business”. Reports coming out of India suggest that, internally, support for Asha and Lumia has already been dropped.

Despite this merging of units, there will be two engineering facilities for devices – one focused on higher end Lumia devices and one on affordable devices. Both units are based in Finland, and development efforts elsewhere – including Beijing – are being scaled back.

While these factors do not outright indicate that Microsoft is pulling away from emerging markets, the scrapping of the X product line and downsizing of operations in these areas suggest that it may be focusing more strongly on developed markets.


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