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Microsoft Announces Biggest Layoff in the Company's History

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After days of speculation, Microsoft Corporation (MSFT - Free Report) finally announced on Thursday that it will eliminate up to 18,000 jobs over the next one year, as it takes steps to build leaner business processes and integrate Nokia Oyj´s handset unit.

Shares of Microsoft scaled a new 52-week high as investors cheered the company’s announcement to slash jobs in a strategic move. The restructuring will significantly trim its workforce as the company attempts to streamline the cost structure and thus boost the bottom line.

At present, Microsoft has nearly 127,000 employees worldwide, which is far more than its competitors Apple (AAPL - Free Report) and Google (GOOGL - Free Report) .  Microsoft will now lay off 14% of its current workforce, making this the biggest round of job cuts in its history. The last time Microsoft announced layoffs was in 2009, when 5% of its workforce was eliminated in order to deal with the recession.

This time round, Microsoft will slash about 12,500 jobs from its Nokia business, which is nearly half of the workforce inherited through the Nokia acquisition in April. Microsoft paid $7.2 billion for Nokia’s (NOK - Free Report) handset business, which was renamed Microsoft Mobile Oyj.

When it struck the deal last year in September, Microsoft had pledged to generate annual cost savings of $600 million within 18 months after the closure of the deal. Therefore, it seems that the job cuts in areas where the two companies overlap are a part of the plan to live up to its commitment.

Approximately 1000 jobs cuts are expected to take place in Finland where Microsoft plans to close down a Nokia research facility in the Oulu region that currently employs 500 people. The remaining 500 eliminations will come from other Nokia units across Finland.

Trimming its workforce will help Microsoft combat losses due to the persistent decline in worldwide PC sales as a result of the rising demand for smartphones and tablets among consumers and corporates. Furthermore, it will help to lower operating expenses and concentrate more on emerging areas like mobile, wearables, cloud-computing and productivity software, as the software developer goes from a “devices and services” company to a “cloud-first mobile-first” one.

Including the eliminations, Microsoft also announced that it will shutter two-year-old Xbox Entertainment Studios over the next few months and focus more on gaming.

Microsoft shares carry a Zacks Rank #3 (Hold).

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