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Microsoft Hits New 52-Week High on Reports of Job Cuts

Zacks

Shares of Microsoft Corporation (MSFT) jumped nearly 4%, touching a new 52-week high of $44.31 on Jul 16, before closing a notch lower at $44.08. This marks a nominal increase from the previous high of $42.47 hit a day earlier. The escalating share prices follow reports that it plans to slash 5,000 jobs, including 1,000 in Finland.

Microsoft is planning to shed 5,000 jobs as it intends to build leaner business processes and integrate Nokia (NOK) Oyj´s handset unit. The workforce reduction is apparently the largest since 2009 when it slashed 5,800 jobs. Sales and manufacturing teams within its Nokia handset unit and global Xbox team are expected to take most of the heat as Microsoft goes from a “devices and services” company to a “cloud-first mobile-first” one.

According to a Finnish daily, Microsoft will 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.

In April, Microsoft closed the acquisition of Nokia’s Devices & Services Business, now named Microsoft Mobile Oyj, for $7.2 billion.

When Microsoft announced its agreement to purchase Nokia last September, it promised 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.

At present, Microsoft has nearly 127,000 employees worldwide, which is far more than its competitors Apple (AAPL) and Google (GOOGL).

Trimming its workforce as a part of its internal restructuring 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.

Investors have responded positively to Microsoft’s restructuring plans as they expect that the staff cuts will drive the software maker’s bottom line.

Additionally, Microsoft’s Xbox console sales more than doubled in June, following a $100 price cut in May when Microsoft announced a cheaper Xbox One package that took out the Kinect sensor.

Microsoft is one of the three largest providers of gaming hardware. Its Xbox console was one of the first gaming devices of its kind. Therefore, the price of the device appears to have been the major deterrent to growth.

Microsoft delivered positive earnings surprises in the last three quarters with the average coming to 4.73%. Ongoing initiatives could enable it to report another good quarter.

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


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