Microsoft confirms plans to cut 18,000 jobs in the next year

A majority of the job cuts will come from the recently acquired Nokia devices and services unit.

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Microsoft CEO Satya Nadella James Martin/CNET

Microsoft CEO Satya Nadella on Thursday laid out plans to cut as many as 18,000 jobs in the next year.

The software titan had been widely expected to announce the cuts today, but the magnitude of the layoffs was surprisingly large. A vast majority of the cuts -- 12,500 -- will come from professional and factory positions from the recently acquired Nokia devices and services division.

Microsoft said the company is working on reducing the first 13,000 positions, and many of the employees will be notified in the next six months.

"Making these decisions to change are difficult, but necessary," he said.

Microsoft is in the midst of a transformation in which it is expanding beyond its core software licensing business, expanding into hardware and cloud services, into what CEO Satya Nadella calls a "productivity and platform company." But those changes are coming at a cost, as evidenced by the need for job cuts. Earlier this month, Nadella teased "big changes" in a 3,100-word post calling for a restoration of innovation and a more nimble operation.

It's the largest round of layoffs ever for Microsoft, which previously cut roughly 5,800 people in 2009. The remaining 5,500 positions will be cut from a wide variety of divisions at Microsoft, according to ZDNet's Mary Jo Foley. The company employs 130,000.

The cuts represent Nadella's toughest move since taking the reins in February.

"We have a lot of work ahead of us," Nadella told CNET earlier this month. "And I see good progress in the last six months about work that was started even before I started as CEO."

That the Nokia unit is taking the biggest hit isn't a surprise. Microsoft added roughly 25,000 employees to the payroll after closing its deal to buy the business for $7.2 billion in April.

The layoffs are driven by "work simplification," or the streamlining the business, as well as the integration of the Nokia unit's operations, Nadella said in today's post.

Nomura Securities analyst Rick Sherlund said in a note last week that the cuts could eliminate $1 billion in costs with just a 25 percent reduction in Nokia employees. Microsoft will shed half the staff.

Nadella said that while there will be cuts in some areas, Microsoft will continue to add positions in other areas. He promised severance and job transition support to all affected employees.

"My promise to you is that we will go through this process in the most thoughtful and transparent way possible," he said.

The Nokia unit, the devices and services business, now under former Nokia CEO Stephen Elop, will remain a vital part of the new Microsoft. Nokia's Lumia smartphones remain the standard bearer for Microsoft's Windows Phone operating system, and their continued growth is critical to the overall success of the platform.

"We will focus on driving Lumia volume in the areas where we are already successful today in order to make the market for Windows Phone," Elop said in his own note to employees. "With more speed, we will build on our success in the affordable smartphone space with new products offering more differentiation."

Nadella added that he would shift select Nokia X smartphones -- which run on a heavily customized version of Android -- over to Lumia and Windows Phone.

The mobile device world -- along with Microsoft's Surface line of tablets -- is increasingly important as growth in PC sales continue to lag -- alongside sales of its core Windows PC operating system. Beyond smartphones, it has teased other hardware including wearables, and reiterated its desire to keep the Xbox gaming division.

Nadella will hold his monthly Q&A with employees tomorrow, but will likely address the public next during the company's quarterly earnings conference call on July 22.