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When “Sure Bets” Aren’t Quite So Sure After All: Recent Woes at Two Tech Mega-Giants

July 8, 2015
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It was quite interesting to hear bad news coming from two tech mega-giants this week: Apple and Microsoft
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It was quite interesting to hear two pieces of bad news from two tech behemoths within a day or so of each other. One involved Apple, the other, Microsoft. Big enough for you…??

In the case of Micosoft, the news was that the Washington-based giant was laying off thousands of employees and restructuring its mobile phone business after ongoing woes in its mobile phone business unit, all related to the former Nokia.  As the July 8 report in CNET noted, “Microsoft is cutting more employees and restructuring its mobile phone business, in a costly maneuver that continues the company's struggle in the smartphone market. The software giant announced Wednesday that it will lay off 7,800 workers, most of them in its moribund smartphone unit, which it bought from Nokia last year to the tune of slightly more than $7.2 billion. The 7,800 positions being cut represent about 6.5 percent of the 118,584 employees Microsoft had as of March 31.” The CNET report further noted that “The company also said that as a result of the layoffs and restructuring, it will record a charge of around $7.6 billion related to assets it took aboard through its acquisition of the Nokia Devices and Services business, along with restructuring expenses of approximately $750 million to $850 million. In a nutshell, that means Microsoft paid too much for Nokia's phone business based on how the unit is performing now, and the company wants to write off some of the now ‘worthless’ assets.”

Sigificantly, most of this trouble is directly related to Microsoft’s April 2014, $2.7 billion acquisition of the troubled device business of the Finnish telecom company Nokia, which in the 1990s and early 2000s had been a boom company that later crashed into total bust. As the CNET article noted, “Last month, Microsoft announced that Stephen Elop, the former CEO of Nokia who headed Microsoft's devices group, was leaving the company. Joining him on the exit line was former Nokia executive Jo Harlow, who reported to Elop. Microsoft has long been trying to make a greater dent in the smartphone market, one of the reasons it acquired Nokia's handset unit. But it's mired in a distant third place in the market, with a 2.5 percent share that's going nowhere, far behind Apple and Android.”

On the first anniversary of the Microsoft/Nokia deal, this PC World blog by Mikael Riknas of IDC News lays out the issues very well.

Still, the CNET article quoted Microsoft CEO Satya Nadella as saying, “I am commited to our first-party devices, including phones. However, we need to focus our phone efforts in the near term while driving reinvention. We are moving from a strategy to grow a standalone phone business to a strategy to grow and create a vibrant Windows ecosystem that includes our first-party device family."

Now, here’s the even-more-interesting development: as a report in Network World online on Tuesday noted, Apple Watch sales have “fallen off a cliff since its big debut.” As the report, by Colin Neagle, notes,  “Since its first week on the market, during which Apple sold about 1.5 million Apple Watches, the company has seen a 90% decline in sales of its smartwatch, according to a MarketWatch article on data collected by Slice Intelligence. On a daily basis,” Neagle’s article goes on to say, “Apple is now selling fewer than 20,000 Apple Watch units, and occasionally fewer than 10,000, according to the report. That's down from an estimated 200,000 sales per day in the first week the device was on the market. Slice, which often releases data on estimated sales of Apple products, also says that the lower-cost (starting at $349) Sport model has accounted for about two-thirds of Apple Watch sales. To date, Apple has sold fewer than 2,000 units of its gold, Edition model Apple Watch, which are priced at $10,000 and higher, according to the report.” Further, he adds, “These depressing numbers on the Apple Watch aren't exactly coming out of nowhere, either. Late last month, Bloomberg reported that Slice data showed the Fitbit wearable fitness band had outsold the Apple Watch, despite Fitbit experiencing a decline in sales in the weeks leading up to the Apple Watch's release.”