Microsoft’s plan to slash 18,000 jobs that was announced this week was met mostly with approval by market watchers, but they cautioned that the cuts need to be a one-time event and not the beginning of a long period of bleeding.

In a company-wide email sent yesterday, Microsoft CEO Satya Nadella said most of the cuts would affect Nokia, the once-dominant cell phone provider that Microsoft acquired earlier this year. Nadella said the restructuring would encourage “work simplification,” “integration synergies,” and “strategic alignment.” Observers noted, however, that laying off 15 percent of the workforce is a major event that signals and urgent need for change.

The new underdog

Microsoft, which so dominated the PC software industry that it was sued for antitrust violations on two continents, is perceived as more of an underdog these days in high-growth cloud and mobile markets. The company’s stock barely moved for a decade before ticking up over the past year. While it still dominates the desktop, Microsoft’s Windows operating system ran on just 14 percent of all of devices shipped last year, according to a Gartner report. That’s a figure which leaves Microsoft firmly in the middle of the pack.

The good news for Microsoft is that new CEO Satya Nadella appears to be man of action. Just last week he sent a company-wide memo to employees that once again stressed his “mobile-first, cloud-first” vision that’s focused on unifying hardware with software.

“Microsoft has a unique ability to harmonize the world’s devices, apps, docs, data and social networks in digital work and life experiences so that people are at the center and are empowered to do more and achieve more with what is becoming an increasingly scarce commodity — time!” Nadella wrote.

That’s a different approach from the “Windows-first” mentality that dominated the Bill Gates and Steve Ballmer eras. Gartner analyst Merv Adrian notes that Microsoft needs to restructure itself if it’s to thrive in a tech world that’s dominated by multiple devices and platforms. “It’s been a very consistent delivery on the promises Nadella’s made so far,” said Adrian.

“This is a pretty significant cut, and I think it tells you that Satya Nadella is trying to put his own stamp on the company and I think it also tells you that he’s not going to let Nokia become a quagmire, in terms of dragging down the potential efficiencies in the business,” added Kirk Materne, a technology analyst at Evercore Partners.

Can Microsoft bite back?

Nadella’s vision of pushing out cloud services that work with every kind of device is winning praise, even if it’s a radical departure from the traditional Microsoft strategy. It’s also a blueprint for a leaner, smaller Microsoft, and could well force it to rely more heavily on its channel partners to push its software and services.

Some market watchers believe Microsoft has forgotten its core competency after being distracted for the past decade battling Google in the office productivity and public cloud space.

“Microsoft needs to take a hard look at where their battle is with Google — is it worth it?”, said Charles Weaver, CEO of the International Association of Cloud & Managed Services Providers. “[Microsoft] may be creating the right tech, and I have no doubt Microsoft has what it takes, but my question is, what’s the delivery method? Microsoft will need to go back to re-engaging the partner channel.”

Partner engagement has historically been a Microsoft strength. Windows succeeded in large part because Microsoft was successful in convincing independent software developers to write for the platform, and the company made generous discounts available to hardware makers who bundled Windows instead of an alternative operating system.

Despite the job cuts, Microsoft is still blessed with thousands of talented employees, but Nadella needs to be careful about how he handles the market’s reaction to the latest news, says J.P. Gownder, a vice president and principal analyst at Forrester Research. The job cuts could have “tangible affects on morale”, he says, adding that he hopes this “will be a one-time change, so they can go and execute.”

“There’s always a cost associated with these kinds of moves, but companies can survive and move on.”

photo credit: Adam Foster | Codefor via photopin cc