Microsoft will eliminate as many as 1,850 jobs in its smartphone hardware business and record a charge of approximately $950 million, another sweeping retreat from the Nokia handset operation it bought for $7.3 billion only two years ago. The cuts arrive as Windows-powered phones account for less than 1 percent of global smartphone sales.

About 1,350 positions will be eliminated in Finland, where Nokia built a national technology champion, and roughly 500 more will be cut elsewhere. Most of the restructuring is expected to be completed by the end of 2016 and all of it by July 2017. Reuters reported that the charge includes about $200 million in severance payments.

A $7.3 billion acquisition is largely dismantled

Microsoft purchased Nokia’s devices and services business in 2014 to secure a hardware platform for Windows Phone and challenge Apple’s iPhone and the many manufacturers using Google’s Android. The deal brought roughly 25,000 employees and made Microsoft responsible for designing, manufacturing and distributing Lumia handsets.

The strategy has unraveled quickly. Last year Microsoft wrote down approximately $7.6 billion related to the acquisition—more than the original purchase price after adjustments—and announced 7,800 job reductions, most tied to phones. This month it agreed to sell Nokia’s basic feature-phone assets to FIH Mobile, a subsidiary of Foxconn, and HMD Global for $350 million. ABC News’s account of Wednesday’s action noted that the latest cuts follow that sale and leave the Lumia smartphone effort dramatically smaller.

The cumulative scale makes the new announcement more than an ordinary restructuring. Microsoft is removing the manufacturing and geographic infrastructure inherited from Nokia while preserving only selected engineering work. An Associated Press report described the action as an attempt to salvage a rocky entry into smartphone hardware after some 26,000 earlier job cuts connected to the business.

Market share collapses to 0.7 percent

Consumer adoption offers the clearest explanation. Research firm Gartner estimated that manufacturers sold about 2.4 million Windows smartphones worldwide during the first quarter, giving the operating system a 0.7 percent share. That compares with 2.5 percent a year earlier. The Verge’s review of Gartner’s data calculated that Windows phone sales fell more than 70 percent while the overall smartphone market grew.

Android captured roughly 84 percent of first-quarter sales and Apple’s iOS about 15 percent, leaving little room for a third ecosystem. That imbalance compounds itself. Developers concentrate on the two platforms with large audiences; consumers then avoid a smaller platform because important applications arrive late or not at all. Microsoft’s substantial payments and technical assistance to developers did not break that cycle.

The Nokia purchase also occurred just as low-cost Android manufacturers expanded and smartphone growth began shifting toward emerging markets, where price and application breadth mattered more than Microsoft’s enterprise relationships. Lumia devices won praise for cameras and distinctive design, but the lineup could not establish the volume necessary to support a global hardware operation.

Nadella narrows the meaning of a Microsoft phone

Chief Executive Satya Nadella said Microsoft would continue developing devices where it can differentiate itself, pointing to security, manageability and its Continuum feature, which allows a phone to drive a monitor and keyboard like a personal computer. The language suggests a future centered on specialized business users and experiments rather than a complete Lumia range for the mass market.

The company says it will continue supporting existing Lumia phones and developing Windows 10 Mobile. But employees and analysts read the reductions as close to an exit from manufacturing. A Finnish union representative told Reuters that he expected Windows 10 to continue while Microsoft-made phones ceased. Microsoft did not confirm that conclusion.

GeekWire characterized the decision as an effective withdrawal from broad smartphone hardware, noting that Microsoft still left room for future devices. That distinction matters because the company has successfully created a premium hardware category with its Surface computers. A limited “Surface Phone” could demonstrate Windows capabilities without rebuilding Nokia’s mass-market structure.

Software replaces hardware as the mobile strategy

Even as its own mobile operating system declines, Microsoft is reaching smartphone users through software on rival platforms. Office, Outlook, OneDrive, Skype and other services are available on Android and iOS. Nadella’s emphasis on cloud computing makes the identity of the underlying handset less important if customers use Microsoft applications and store data in its services.

That approach reverses the logic behind acquiring Nokia. Then-Chief Executive Steve Ballmer argued that control over hardware and software was necessary as computing moved from personal computers to mobile devices. Nadella has instead made Microsoft’s products broadly available, seeking revenue and engagement wherever users are.

The shift has financial discipline behind it. MarketWatch reported that the $950 million impairment and restructuring charge will be recorded in the current quarter within the More Personal Computing segment. Microsoft’s shares changed little after the announcement, suggesting investors had already discounted the phone business.

Finland absorbs another industrial blow

The consequences are more acute in Finland. Nokia’s handset division once symbolized the country’s innovation economy and employed thousands in engineering, design and manufacturing. Microsoft’s 1,350 planned reductions there will fall heavily around Tampere and the Helsinki region, adding to layoffs from the earlier restructuring.

A Guardian report said the latest move puts Nadella’s stamp on the company and further unwinds the signature acquisition of his predecessor. Finnish officials and labor representatives now face the task of redirecting experienced mobile engineers toward smaller technology firms, gaming companies and communications suppliers.

The decision does not end Microsoft’s role in mobile computing. Its software serves hundreds of millions of phones, and Windows remains dominant on personal computers. But it does end the ambition, at least in its Nokia-era form, to compete with Apple and Samsung through a full-scale handset operation. Two years after buying the assets needed to become a major phone maker, Microsoft is paying nearly another billion dollars to become a much smaller one.