Last year Microsoft announced its buyout of Nokia, the Finnish communications and information technology multinational corporation. Now as Microsoft absorbs Nokia, the new CEO of Microsoft has announced the largest layoff – 18,000 employees – in the company’s history. After the announcement of the layoffs, the company’s stock increased to a point that it hasn’t seen since the dot-com boom. Although Microsoft is no stranger to the idea of consuming its competitor, it does beg the question: How will this affect the economy?
Mergers and acquisitions are promoted as having a good economic impact for the general public and consumers. Following the announcement of the layoffs, Microsoft’s new CEO has been adamant that the recent absorption of Nokia will allow the company to focus on consumer needs to better benefit them through their products. With the acquisition of Nokia’s 30,000-employee workforce, 12,500 will be laid-off. At the same time Microsoft is laying off 5,500 of its own employees.
Historically, it seems most mergers and acquisitions are either achieving a takeover of a company’s technology, assets, customers and patents, or purposely invading other competing markets – as was the case with Oracle’s takeover of Peoplesoft or the current attempt by Comcast to acquire Time-Warner.
Currently we are seeing the biggest boom in mergers and acquisitions since the recovery, with no sign of slowing. Many would say this is good news as mergers usually occur when the economy is doing better. Yet, the irony is that most, if not all, mergers have led to mass layoffs, while the stock for investors and packages for corporate managers increase.
The recent increase in mergers has been carried out with the large hoards of cash these companies have been sitting on. Most companies have extra cash on hand because of their lack of investment during the recession and the extremely low interest rates offered by the Federal Reserve. And instead of investing this “extra” cash into their company and employees, they buyout competition and patents with the benefits going to the investors (with the increase of stock prices) and bankers who assist in the mergers.
Microsoft, before the acquisition, was struggling at the bottom of the phone market with their Windows phone. Although the tablets and Xbox have fared better than their mobile department, many have questioned Microsoft’s intent with taking over Nokia. After the announcement of their massive layoffs, the CEO was quick to alert their stockholders and customers that the company will be focusing on its cloud market, with the intention of becoming head of the cloud and mobile industry, competing with Google, Apple and others.
At the same time, as most of the layoffs from Nokia’s headquarters are going to impact Finland, it’s left the leader of Finland very upset over the recent buyout, calling it a broken promise by Microsoft. Yet, it’s not all bad news for Nokia. The former CEO of Nokia has been secured a spot within Microsoft. The layoffs affecting Microsoft’s staff has some in Washington – it’s main region – worried about potential economic impacts on their community.
Nokia had suffered setbacks after it fell out of being the top phone company. It’s massive collection of patents had kept it afloat long enough for many to speculate that the company had to be bought or it would dissolve after it had laid off 10,000 workers and cut its R&D in 2012. Many speculated that Nokia was over after it fell out of its number one spot in phones as Apple and Google took the lead. This continued trend of consuming and hoarding of patents has led to less competition and when the big companies fail, they’re absorbed into bigger and more concentrated markets, leaving fewer companies for customers to choose from.
As mergers and acquisitions grow alongside the increase of corporations moving their headquarters overseas to avoid taxes, our country is going to continue to feel the repercussions with more layoffs, and less tax revenue to go to our deteriorating infrastructure, public health, schools and local communities. We will continue to see an increase of taxes on the middle and lower class as they are burdened for the sake of these companies and the wealthy to maintain their “competitive edge.” But this is the issue no one wants to confront. With the continued trends of corporate tax evasion and corporate consolidations, we are going to continue to have a lack of good paying jobs, a lack of competition, and a shrinking middle-class with limited choices for their consumer needs.
The news of the layoffs with Microsoft is nothing new and many can argue whether the overall outcome for the consumers and the tech community will be positive or not. The thing to confront is the fact that 18,000 staff members sit in fear of being let go over the next year. All things considered, the deal has been good to Microsoft’s stock, reinforcing the idea that most transactions that take place through the market don’t benefit the public. They benefit the few making the deals over the boardroom.