How The Tech Pendulum Swings

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Microsoft announced another bunch of job cuts today, primarily in the phone-making division which it acquired from Nokia in a 2013 deal which completed last year. Shrinking headcount in this division was something Redmond started doing a year ago, soon after gaining full control.

Nokia had also been laying off staff prior to the acquisition, as it struggled to transition from a feature phone mindset to competing effectively with a new generation of smartphone makers. We know how that story ended: with Microsoft acquiring Nokia’s devices business to keep its primary Windows Phone OEM in the fold (rumors of Nokia switching to Android were rife in the run up to the acquisition). While Nokia gained $7.2 billion+ from Microsoft, shed around 30,000 staff (handing them off to Microsoft), and bowed out of the handset-making business — saying it would focus on its remaining business divisions.

Since taking phone making in-house, Microsoft has been unable to accelerate its mobile platform’s fortunes. The OS has made some modest gains in some European markets but was still ranking below 10 per cent share across the five major EU economies, according to Kantar Worldpanel ComTech‘s smartphone sales data for the three months ending April 2015. The OS is also seeing declines in some markets where it had previously been growing. And continues to be shunned in the U.S. Not a performance to write home about. And evidently one that’s bad enough to trigger another big round of layoffs. Microsoft said today the 7,800 new jobs cuts are “primarily” related to its phone business.

In an email to Microsoft staff CEO Satya Nadella also signaled that a shrinking in the portfolio of Windows smartphones is on the cards — hardly a surprise given the firm is hiving off large numbers of staff (and has had to take a massive write-down on the acquisition), so will have fewer resources to build phones. “In the near-term, we’ll run a more effective and focused phone portfolio while retaining capability for long-term reinvention in mobility,” he wrote. For “more effective and focused” read: fewer handsets.

Meanwhile, over in Finland, Nokia is preparing the ground to get back into the phone business. Last month the former phone-maker confirmed it plans to design and license smartphones — starting next year, when a contract clause with Microsoft preventing it from using the Nokia brand on smartphones expires. It has paved the way for this leaner hardware model with an Android tablet called the N1, working with China’s Foxconn as its manufacturing partner. Nokia has also put out its own Android launcher software, giving it a lightweight topper for its own-brand Android hardware.

So as Microsoft prepares to shrink its mobile efforts, Nokia is firing its engines afresh to compete in mobile again — albeit in a leaner, less capital-intensive format with the risk and expense associated with hardware manufacturing outsourced to the same company that assembles devices for Apple. It’s a model that requires far fewer in-house staff. And, as fortune would have it, Nokia effectively outsourced the necessary layoffs by selling its devices division to Microsoft. Quite the resources realignment trick to pull off, but then the company has a very long history of business reinvention.

If the biggest risk to long-in-the-tooth corporates is complacency and poor execution caused by increasing size begetting increasing bureaucracy and blinkered perspective on the changes need to keep pace with market moves (and disruptive startups) then Nokia’s devices exit starts to look like a stroke of under-pressure genius. A Houdini move to escape a very bad bind that has let it claw back enough rope to loop anew. Meanwhile Microsoft is saddled with costs, a poorly performing mobile business and the conundrum of the original bind: how to compete in an Android and iOS dominated market?

How the tech pendulum swings — or it can if you pay it out right. Of course that’s not to say that a Nokia built-on-Android devices strategy is going to be easy or successful. Competing as an Android OEM is tough and getting tougher as margins are squeezed, smartphone growth slows and competition proliferates. The age old problem of differentiating on a Google-controlled platform hasn’t gone away either.

One wildcard option for Nokia could be to use an alternative platform to Android. No, not Windows but something a lot closer to home, physically and spiritually: Jolla’s Sailfish OS — which itself grew out of Nokia, an extension of the open source MeeGo platform continued by a group of ex-Nokia employees. The Finnish phone startup has just realigned its own business structure to put more resources into a platform licensing business fully focused on Sailfish so it can double down on a strategy of targeting BRICs markets with a localization mobile sales pitch. It’s a stretch to say Nokia might be interested in designing hardware that runs on Sailfish but, well, the symmetry would certainly be pleasing. And, more importantly, the opportunity for it to do so exists.

And with Microsoft having axed — and still axing — so many former Nokia staff there’s no shortage of local phone-related talent for the world’s former No.1 mobile maker to pick up again, should its new model mobile army have need of additional headcount.

One thing is certainly true: it’s going to be fascinating to see how the next round of pendulum swings play out.