Microsoft Feels the Pain of a Failed Mobile-Phone Business

Microsoft is hurting after shifting its smartphone strategy -- leading it to report the biggest quarterly loss in company history.

The company reported fourth-quarter earnings Tuesday that reflected a $7.5 billion writedown related to its failed acquisition of Nokia's phone and services business. Microsoft also said it will incur additional charges, for combined writedown costs of $8.4 billion.

Those charges contributed to a net loss of $3.2 billion, or 40 cents a share. Shares fell about 3.5 percent in after-hours trading, indicating investors had factored in the loss.

Microsoft paid $9.5 billion in April last year for Nokia's handset business, including the $1.5 billion in cash Nokia had on hand.

It's just the latest in a series of expensive after-effects of the software maker's ambitious plan to compete against Apple and Google in the mobile arena. Microsoft plans to lay off about 7,800 people, mostly from the Nokia division. Last year it laid off 18,000 employees -- its largest workforce reduction ever -- including 12,500 former Nokia employees.

The world's largest software company also reported sales of $22.2 billion for the three months ended June 30. Excluding writedown charges and other costs, Microsoft said it had a profit of 62 cents a share. That beats the estimate of 58 cents a share of analysts surveyed by Bloomberg.

Microsoft, under the stewardship of CEO Satya Nadella, has spent the past 18 months transforming its products and its approach to customers. The company is transitioning away from selling licensed software at flat (and high) prices and now offers subscriptions to its cloud-based apps and services. While that move shows up as lower sales for the quarter, the company actually makes more money over time.

In the process, though, the Redmond, Washington, company has had to make tough decisions about its strengths. Mobile hardware, it would seem, will not be one of them for the foreseeable future.

For now, the company is...