Per the downsizing, Microsoft will take an impairment charge of about $7.6 billion related to assets associated with the acquisition of the Nokia Devices and Services business, along with a restructuring charge of $750 million to $850 million.
In a letter to employees on Thursday, CEO Satya Nadella said Microsoft would be refocusing on what the company has historically done best: software.
“We are moving from a strategy to grow a standalone phone business to a strategy to grow and create a vibrant Windows ecosystem including our first-party device family,” Nadella said.
In the near term, that means running a more effective phone portfolio, with better products and speed to market given the recently formed Windows and Devices Group, according to Nadella.
Microsoft plans to narrow its focus to three customer segments where it can differentiate through a combination of hardware and software.
The announcement is part of a broader strategic shift going on at Microsoft.
Late last month, the company signed a deal that gives AOL responsibility for the majority of its display advertising. Microsoft, in turn, is shuttering most of its display ad business, and handing over parts to AOL and AppNexus.
The deal means that AOL -- recently acquired by Verizon -- will sell all display formats, such as mobile and video, for the Microsoft portfolio across nine markets, including Brazil, Canada, France, Germany, Italy, Japan, Spain, United Kingdom and the United States.
Microsoft will continue to sell search ads, which have seen market share and revenue rise. The two companies also signed a 10-year agreement for Microsoft to serve organic search results and paid-search ads across AOL properties. The deal made Bing the default engine on AOL beginning Jan. 1, 2016, replacing Google as the default engine.
Nadella said the staff reductions would transpire over the next several months.