With 18,000 Layoffs, Is Microsoft Giving Up On Low-Income Phone Users?

Microsoft CEO Satya Nadella CREDIT: AP
Microsoft CEO Satya Nadella CREDIT: AP

Microsoft announced Thursday morning that the company will eliminate a whopping 18,000 jobs. Newly acquired mobile phone maker Nokia will bear the brunt of the layoffs, with pink slips for about 12,500 professionals and factory workers. The layoffs could signal that the tech giant is losing interest in low-income consumers who are just starting to show interest in smartphones.

Microsoft bought Nokia earlier this year intending to expand business to the billions of people around the world who rely on mobile phones but cannot afford a smartphone. “With the Nokia mobile phone business, Microsoft will target the affordable mobile devices market, a $50 billion annual opportunity, delivering the first mobile experience to the next billion people while introducing Microsoft services to new customers around the world,” a press release announcing the acquisition in April explained.

Three months later, Microsoft seems to be somewhat less enthusiastic about this prospect. The layoffs will be part of a restructuring that merges the Smartphone and Mobile Phone departments into one unit — possibly sacrificing attention to poor and middle class consumers who want cheaper phones. In a post-layoffs announcement, Nokia CEO-turned-Microsoft Devices head Stephen Elop laid out the new priorities, emphasizing high-end products: “To win in the higher price tiers, we will focus on breakthrough innovation that expresses and enlivens Microsoft’s digital work and digital life experiences…And in the very lowest price ranges, we plan to run our first phones business for maximum efficiency with a smaller team.”

As smartphones transform from luxury good into basic necessity for life in the 21st century, billions of consumers in developing countries like Brazil, India, Indonesia, Malaysia and Kenya are expected to buy more devices than Americans or Western Europeans. Low-cost phones are, therefore, the future of the industry. Faced with this future, manufacturers accustomed to catering to well-off Americans, like Google, Apple and Microsoft, now find themselves retooling for a new audience.

Nokia had already started tapping into this market with a low-cost smartphone, Nokia X, which was marketed as a starter smartphone that would transition consumers to Microsoft’s more expensive Lumia series. The Nokia X made a splash in March, selling out in China within four minutes, and the X2 was to be released this month. But now, Microsoft seems to be killing the X series and merging it with the higher cost Lumia devices. It’s not yet clear if Microsoft will offer a cheaper alternative to replace the X — or if they will choose to drop their stake in low-income phone users altogether.