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Two men are fishing on the ice in the Gulf of Finland in Tallinn
Reuters/Ints Kalnins
Baby, its cold out there.
COLD CUTS

Microsoft has dealt a massive blow to its phone business—and Finland

By Joon Ian Wong

Microsoft just laid off 1,350 people at its mobile phone business in Finland, with another 500 people fired globally. It’ll pay out $200 million in severance, and the whole exercise will cost $950 million in total, the company said in a statement.

The layoffs were part of an effort to “streamline” Microsoft’s mobile business, which was built on the foundation of Nokia’s smartphone business, acquired in 2014. The acquisition has not gone well, to put it mildly. The combined company laid off 7,800 people at its phone business last year, incurring a restructuring charge of up to $850 million.

To put those charges into context, Microsoft last week sold the feature-phone part of the mobile business to Foxconn and a new entity staffed by Nokia alumni called MHD Global. It got $350 million for that, or about 20% of the restructuring charges racked up over the two rounds of layoffs.

The layoffs will hit Finland’s struggling economy hard. Once upon a time, the high-tech phone business boosted the wealth of the tiny country of about 5 million, with the mighty Nokia accounting for 4% of GDP annually from 2000 to 2007. But the iPhone put a swift end to that reign, leaving Nokia desperate for a savior. That’s where Microsoft, under Steve Ballmer, confidently stepped in, with a $7.2 billion check. The Finnish economic affairs minister hailed the deal as having “big symbolic value” to Finland.

But under CEO Satya Nadella, Microsoft is leaving the costly legacy phone business from the Ballmer days behind and successfully turning itself into a major cloud player. Hence the cuts in Finland, where unemployment has risen from as low as 6% back in 2008 to the 9.8% reported last month. The latest Microsoft firings will make things significantly worse. For comparison, the average monthly number of laid off workers in Finland last year was about 4,000, from 105 companies on average, according to Finnish government statistics (pdf). The latest Microsoft firings represent about a third of that figure, from a single employer.

At least Microsoft’s investors seem to believe Nadella has made the right call. The company’s stock was ticking up by nearly 1% in early US trading.