For Microsoft (MSFT) - Get Report , the software behemoth's decision to largely exit the mobile phone business highlights its long-term strategy and could well signal brighter days to come, analysts say.
Redmond, Wash.-based Microsoft announced Wednesday that it plans to "streamline" its smartphone hardware business by eliminating up to 1,850 jobs. Up to 1,350 job cuts will come in Finland.
As part of the restructuring, Microsoft will record a restructuring charge of about $950 million.
Shares of Microsoft were trading up about 1.6% Wednesday afternoon to $52.42.
"We are focusing our phone efforts where we have differentiation -- with enterprises that value security, manageability and our Continuum capability, and consumers who value the same," said Microsoft CEO Satya Nadella in a statement (Continuum refers to the tech company's recently-introduced feature that allows mobile phones to be used as a PC).
For the tech behemoth, the job reduction is the latest in an ongoing effort to scale down its smartphone business.
Just last week, Microsoft agreed to sell its feature phone assets to Foxconn's FIH Mobile for $350 million.
"When you look at their inability to make real headway against Apple's iOS or Google's Android operating systems in the marketplace, this was struggling to gain share," said Edward Jones analyst Josh Olson of Microsoft's phone business, referring to Apple's (AAPL) - Get Report and Alphabet's (GOOGL) - Get Report mobile systems.
He further said that the company's decision to exit the phone business is a step in the right direction and illustrates Nadella's decisiveness and willingness to abandon projects or investments that aren't working.
"In a sense, he's making tough decisions that ultimately will improve the focus on the core strengths of the firm and right now those are really the productivity solutions that they have, not so much just the phone," Olson added.
It was only in 2014 that Microsoft established Microsoft Mobile by acquiring Nokia's devices and services division for $7.2 billion.
But the Nokia acquisition, which was made by former CEO Steve Ballmer when Microsoft was trying to expand its footprint in the smartphone market, turned out to be a bad one.
Just last year, Microsoft wrote off $7.6 billion related to the acquisition and decided to cut 7,800 jobs in the phone business.
Still, Olson said Microsoft shares are at an attractive entry point following their recent pullback after third-quarter results were announced, and will likely deliver a nice story over the next three to five years under Nadella.
"We see the culture of Microsoft has reinvigorated under new leadership and financial position. It's a rising dividend story that's important to investors," he added.
Olson further explained that going forward, Microsoft will likely dedicate energy to its cloud business Azure, which has gained traction along with Amazon.com's (AMZN) - Get Report Amazon Web Services. In addition to Azure, Microsoft will likely focus on its business offerings -- whether that's device software, security solutions or productivity offerings such as Continuum.
In fact, hardware simply hasn't been a particular area of interest for Nadella, who has pushed for a "Mobile First, Cloud First" strategy since he became Microsoft's chief executive about two years ago.
While the doors will remain open from a hardware perspective -- as demonstrated by Microsoft's success with its Surface devices -- software has proven to be the more lucrative business, Morningstar analyst Rodney Nelson said via phone.
"Cloud is what will carry them into the future," he added.
Nelson further noted that leaving the phone business, while not a surprise, does signal what Microsoft will look to do long-term: "They will remain incredibly focused on cloud services and pushing Windows out to as many people as possible."
Microsoft is among the latest software players to exit out of a hardware market after making an unsuccessful run, Tigress Financial Partners chief investment officer Ivan Feinseth noted. For example, Alphabet sold Motorola Mobility to Lenovo (LNVGY) in 2014 for $2.91 billion -- a steep drop from the $12.5 billion Alphabet paid for the smartphone maker back in 2012.
At the same time, Microsoft has the "most entrenched" operating and productivity tools that are hard to replace and have more upside, Feinseth said.