Partners: Nadella's 'Overdue' Layoffs Set Microsoft Up For Success

Microsoft will cut some 18,000 jobs over the next year – 12,500 of them from Nokia – in a move channel partners hope signals Microsoft's transformation into a more nimble company that's easier for solution providers and customers to work with.

In a brief statement Thursday morning, Microsoft said the layoffs are part of a restructuring plan "to simplify its operations and align the recently acquired Nokia Devices and Services business with the company's overall strategy."

Microsoft said it expects the cuts to be "substantially complete" by Dec. 31 and "fully completed" by Jun 30, 2015, the end of the company's fiscal year. Microsoft will take a pre-tax charge between $1.1 billion and $1.6 billion to covers costs associated with the restructuring.

[Related: Inside The Memos: How Nadella, Elop Broke Layoff News To Employees]

Channel partners, many of them attending Microsoft's Worldwide Partner Conference in Washington D.C. this week, said they weren't surprised by the news.

Two-thirds of the cuts are coming from Nokia, which Microsoft just acquired April 25 for $7.1 billion, and elimination of redundant positions from an acquisition of that scale are to be expected, said Ric Opal, vice president of Peters & Associates, an Oakbrook, Ill.-based Microsoft partner.

But Opal noted that leaves nearly one-third of the cuts coming from elsewhere in Microsoft, and he sees that as part of the broader restructuring and transformation that is now underway under Satya Nadella, who became Microsoft CEO Feb. 4. Peters & Associates works with a number of Microsoft's faster growing products and cloud services such as Office 365, Azure and Lync Server.

Nadella "wants the right people in the right seats, driving the right outcomes for customers and partners," Opal said, saying he was not surprised by the news of the layoffs. Microsoft's CEO is trying to be "disruptive" and is "driving toward a simpler [corporate] structure that's more nimble."

"If I had to give a one word answer I would just say: overdue," said Dave Powell, vice president of managed and cloud services at TekLinks, a Birmingahm, Ala.-based Microsoft partner. "What you need to look at is that there is a huge philosophical shift that’s going on, that needed to go on. You have [former Microsoft CEO Steve] Ballmer's strategy on devices versus Nadella's strategy around mobile- and cloud-first. That’s going to come with a change in the skill set and the people."

Powell said other market leaders are going through similar transitions, citing networking giant Cisco and its CEO, John Chambers. "Everyone out there, the market is changing rapidly, they have to figure out a way to adapt and respond to that. And that’s hard. Once you become the market leader it's much more difficult to say on top than to get on top sometimes. That's the hard part."

"No one is happy to hear about layoffs, but this is something Microsoft needed to do. My Microsoft cloud business is growing every day. If this means Microsoft will now focus on key enterprise pieces of its business than great," said Larry Velez, CTO and founder of Sinu, a New York-based Microsoft partner with a fast growing Azure cloud business.

Valez said Nadella was cutting the "ball-and-chain" that was part of the Ballmer-era of Microsoft and paving a clear path for Microsoft's future. "Change is good at Microsoft. I hope we see more decisive moves by Nadella. If there is one thing you can’t be in this industry, it is indecisive."

Valez's take-a-way is not only does Microsoft need to reconfigure itself for changing IT-landscape, but so do partners. "It's tough medicine losing 18,000 jobs. But if Microsoft isn't successful, than there are a lot more jobs on the line than 18,000."

NEXT: "The First Major Salvo In The New Nadella Era"

Microsoft outlined the plans for the restructuring and layoffs in an email from Nadella sent to Microsoft employees and an email from Steve Elop, executive vice president, to employees within the Microsoft Devices Group. Of the 18,000 total jobs eliminated, 12,500 are "professional and factory positions" eliminated "through synergies and [the] strategic alignment of the Nokia Devices and Services business."

Opal watched Nadella's keynote speech at this week's WPC and called him "passionate" and "sincere" in his commitment to changing the company's strategic direction "to make a material difference, not just for customers, but certainly for partners as well," he said.

"This is the first major salvo in the new Nadella era – moving away from the Ballmer era where he focused on being a devices and services company with an eye to competing head to head with Apple on all things," said industry analyst Jack Gold, of J. Gold and Associates, in an email. "So far I believe Nadella is making all the right moves to refocus on Microsoft strengths and what it can bring to the new era of computing in the cloud, internet of things, personal productivity products, etc. And to having a laser focus on what enterprises require (a very large portion of Microsoft’s business)."

Microsoft partners are clearly thinking along the same lines.

"The messaging is 100 percent on-point in my opinion," said Powell at TekLinks. "Directionally, it's where the market is going and how we are going to get on that train and get on the same direction. But again it’s a big ship. It takes a long time to turn and that’s the challenge they have. The recipe, it's not that hard, it's the execution of the recipe that’s going to be the challenge. That’s true in any business."

Rick Jordan, director of sales and strategic alliances at Microsoft partner Tenet Computer Group, put the news from Microsoft in the context of what's happening industry-wide.

"You look at the IBM and Apple combining their forces from the enterprise level [and] BlackBerry coming back for the dead. There's a lot of big things happening. The cloud is moving a lot of things. They have to evolve as a company, whether its refocusing or not having too many engineers on something they're not going to be focusing on...It's just a big number that’s all. It's unfortunate, I wish the people that are part of this sweep do land on their feet."

PUBLISHED JULY 17, 2014