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Microsoft to shift phone production from China to Vietnam

Microsoft plans to reduce its manufacturing operations in China and focus its phone production in Vietnam in what is considered a large restructuring of its Nokia unit.

A view of Microsoft and Nokia signs in Peltola, Oulu July 16, 2014.
A view of Microsoft and Nokia signs in Peltola, Oulu July 16, 2014.

The U.S. software titan on Thursday announced it will lay off 18,000 employees by 2015, many of whom are factory workers in China.

The company’s device manufacturing and marketing operations will also be moved to markets where Windows Phone has some traction, according to Stephen Elop, Executive Vice President of Microsoft’s Devices & Services business unit.

“We plan to right-size our manufacturing operations to align to the new strategy and take advantage of integration opportunities,” Elop said in an email to employees on Thursday.

The new strategy, the exec elaborated, is focused on productivity and Microsoft’s desire to help people do more.

“To align with Microsoft’s strategy, we plan to focus our efforts.

“Given the wide range of device experiences, we must concentrate on the areas where we can add the most value,” he wrote.

Phone production is thus expected to be focused mainly in Vietnam, while some production will continue in Beijing and Dongguan.

“We plan to shift other Microsoft manufacturing and repair operations to Manaus and Reynosa respectively, and start a phased exit from Komaron, Hungary,” the email reads.

While the relatively low labor cost in Vietnam, compared with China, is seen as an incentive in shifting production to the Southeast Asian country by other global companies, Elop hardly mentioned this aspect in his email.

“In short, 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,” he said.

“We’ll focus on acquiring new customers in the markets where Microsoft’s services and products are most concentrated.”

Along with its job cut announcement, the Redmond-based tech firm also said it will discontinue production of Nokia X, as well as other Android-powered devices, less than three months after it completed the deal to buy Nokia’s phone business in April.

“We plan to deliver additional lower-cost Lumia devices by shifting select future Nokia X designs and products to Windows Phone devices,” Elop explained in his email.

“We expect to make this shift immediately while continuing to sell and support existing Nokia X products.”

Lower cost

Vietnam is already home to the manufacturing plants of many tech giants, who also arrived in the country after scaling back operations in China.

The world’s leading smartphone maker Samsung Electronics Co Ltd is running four projects in Vietnam, while Intel and LG also have operations in the country.

Larry Dignan, editor in chief of ZDNet, a tech news and analysis website, said the fact that many major tech companies are exiting China is understandable, and it is labor wages that matter.

“A factory worker in Hanoi makes $145 a month compared to $466 in Beijing,” Dignan said in a post on ZDNet on Thursday, citing the Japan External Trade Organization.

Electricity and water costs are also lower in Hanoi, while Vietnam is “aggressively courting technology companies and plans to have 30 percent of its industrial product deriving from high-tech,” he wrote.