The write-down is essentially an admission that Nokia's phone business is worth practically nothing to Microsoft, despite a $7.2 billion acquisition in April 2014. That deal was initiated by former Microsoft CEO Steve Ballmer, and became final after Satya Nadella took over in February of last year.
In addition to the impairment charge, Microsoft will pay $750 million to $850 million for the next round of layoffs. Microsoft already laid off roughly half of Nokia's 25,000 employees last July.
Microsoft said the restructuring would help the company focus and align its resources. A reorganization last month combined Microsoft's Windows and Devices groups under Terry Myerson, who had been in charge of operating systems. Stephen Elop and Jo Harlow, both former Nokia executives who respectively headed Microsoft's Devices unit and phone business, both left the company at the time.
In a memo to employees, Nadella said the company would stop trying to grow a standalone phone business and concentrate on expanding the Windows ecosystem. That means a smaller portfolio of Microsoft phones aimed at specific goals: "We'll bring business customers the best management, security and productivity experiences they need; value phone buyers the communications services they want; and Windows fans the flagship devices they'll love," Nadella said.
Why this matters: To be clear, the smartphone version of Windows isn't going away, as Nadella says he is "committed to our first-party devices including phones." But it sounds like Microsoft is giving up its futile chase for market share--and by extension, a vast array of phones for every market--and instead focusing on a handful of cases where Windows might be useful. Nokia's role at Microsoft was to keep the Windows Phones flowing, but that's not a priority anymore.