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Why is Microsoft getting out of the phone business?

On Thursday, the company said it would cut 2,850 jobs as it struggles with the fallout from its acquisition of phonemaker Nokia.

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    Microsoft chief executive officer Satya Nadella speaks at the company's 'build' conference in San Francisco in April 2014. The company disclosed in a Securities and Exchange Commission filing on Thursday that it would cut 2,850 jobs as it grapples with the fallout of its acquisition of the phone maker Nokia.
    Robert Galbraith/Reuters/File
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Microsoft will lay off 2,850 workers, a move that comes in the wake of two earlier rounds of job cuts as the company has curtailed its mobile phone business.

The tech giant disclosed the cuts Thursday in a US Securities and Exchange Commission filing, The Wall Street Journal reports.

A Microsoft spokesman told the Journal that 900 of the layoffs in the company’s global sales arm have already been completed, while the remaining 1,950 cuts – in both sales and its mobile phone arm – will be completed by mid-2017.

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Three years after it acquired phone maker Nokia in what some have called a “failed experiment,” Microsoft’s move away from a focus on “devices and services,” in the words of former chief executive Steve Ballmer, also mirrors a challenge faced by longtime rival Apple.

On Wednesday, Apple announced the sale of its billionth iPhone on Wednesday. Regardless, dropping phone sales and increasing competition from rivals running on Google’s competing Android operating system have raised questions about whether the device-focused company will have to embrace a new approach to remain profitable.

“Apple is still functioning the way it did 20 years ago,” Vivek Wadhwa, a distinguished fellow and professor at Carnegie Mellon University’s College of Engineering in Silicon Valley, told The Christian Science Monitor this week.

"The way it releases software is, you do a big release, you get everything perfect and it goes out the door. But that is not the way they really do things anymore in this day and age, because technology is moving so fast right now," he added.

To evolve in a changing market, Mr. Wadhwa said, the company could consider making a version of its iOS for non-Apple devices, though he doesn’t think the company will likely embrace that suggestion.

Microsoft, by contrast, has taken a different approach under chief executive Satya Nadella. Only a year after the company acquired Nokia, Mr. Nadella announced a shift away from Mr. Ballmer’s devices and services focus.

Instead, he said at the time, the company would focus on mobile and cloud data storage, including pursuing collaboration with makers of rival technologies, such as creating versions of Microsoft Office that work on Apple and Android devices, ZDNet reported.

“The only way you are going to be able to orchestrate the mobility of these applications and data is through the cloud,” he said at an event in London in November 2014, according to ZDNet. “That's why the juxtaposition of cloud infrastructure and mobile experiences is where the world is going.”

Less than a year later, in July 2015, the company announced 7,800 jobs would be cut as it wrote off $7.6 billion from the Nokia deal. In May, it announced a second round of cuts, eliminating 1,850 jobs. The company lost at least $8 billion on the deal, tech site The Verge reported, including money spent on severance payments for employees.

The latest round of cuts comes as Nadella reorganizes Microsoft’s sales division and further curbs its mobile hardware business, the Journal reports.

As The Verge’s Tom Warren wrote in May, the cuts seem to indicate a full-scale abandonment of phones.

“We might not ever know the true reasons for Microsoft's Nokia phone business acquisition, but right now it's clear the company has wasted billions of dollars on a failed experiment to try and claw its way back into the mobile market,” he wrote.

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