Microsoft (MSFT) - Get Report on Wednesday said that it will make more moves to streamline its mobile-phone business, cutting as many as 1,850 jobs and taking a $950 million charge for impairment and restructuring.
The company is one of the biggest technology blue chips, and its stock is held in many investor portfolios. But with the company all but admitting that it has lost this phase of the cellphone manufacturing game, is Microsoft still a good profit play?
This week's news follows an announcement last week that Microsoft would sell its low-end cellphone business to Foxconn subsidiary FIH Mobile and Finnish company HMD Global. Microsoft had purchased its cellphone business in 2014 from Nokia for $7.5 billion.
The Nokia deal has been troubled from the start. Last July, Microsoft booked an impairment charge of $7.6 billion related to the Nokia business, laying off more than 7,500 workers in the process.
Microsoft has simply not been able to compete with Apple's iPhone or Android smartphones reliant on Alphabet's Google operating system.
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Whereas Apple and Google control 96% of the smartphone platform market between them, Microsoft maintains just a 2.8% share, according to research firm Gartner.
Microsoft's moves related to the smartphone sector make good business sense and could in fact usher in better opportunities for profits.
This doesn't mean that Microsoft is getting out of the cellphone game for good, however. Instead, the company is realizing that its Nokia experiment was a mistake and that it is better off concentrating on a tighter portfolio of mobile-phone products.
"We are focusing our phone efforts where we have differentiation. We will continue to innovate across devices and on our cloud services across all mobile platforms," the company's Chief Executive Satya Nadella said in a statement.
"We're scaling back, but we're not out," Terry Myerson, head of Windows and devices, wrote in an internal Microsoft email.
It is by no means a disaster that Microsoft is streamlining its cellphone business. Some analysts would say that the Nokia deal was doomed from the start.
By moving away from manufacturing the phones, Microsoft can devote more resources and energy to the products that do work, specifically, its Azure cloud service. Azure has been performing well against competitors such as Amazon's cloud data service, and there are better opportunities for the company in this sphere.
Investors appear to agree with the decision to streamline Microsoft's cellphone business. On Wednesday, shares ticked higher after news of the decision broke.
The stock is trading above $52 a share, not far from the 52-week high of $56.85 hit in December.
Microsoft's business plan revolves around the long term, and that is the best focus for investors in this stock as well. The company is still strong, and investors should regard Wednesday's news as a sign that the company knows what is best.
There are still profits to be made in Microsoft, even without its Nokia smartphone business.
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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.