The rumors were right: Microsoft is slashing 7,800 jobs, mostly from the phone-hardware business it picked up from Nokia, and writing off $7.6 billion of related assets.

That writedown actually beats the $7.2 billion it paid for Nokia’s phone division last year.

It’s effectively an admission from CEO Satya Nadella that the Nokia gamble didn’t work. Microsoft has failed to make any headway in the smartphone market since the acquisition. In fact, it’s gone backwards: Earlier this year Windows Phone market share fell back below 3 percent.

Windows Phone isn’t dead yet then, but it’s getting turned on its head. Software, not hardware, is the starting point.

“We are moving from a strategy to grow a standalone phone business to a strategy to grow and create a vibrant Windows ecosystem including our first-party device family,” said Nadella in an email to employees. “In the near-term, we’ll run a more effective and focused phone portfolio while retaining capability for long-term reinvention in mobility.”

So the “phone portfolio” still exists, but you shouldn’t expect too many Lumia handsets to arrive in the near future. Apple has managed to beat the market with just one or two new handset models a year. Perhaps Microsoft is going to attempt to do the same.

Such sweeping changes in the phone hardware space could be taken as a sign that Microsoft is washing its hands of mobile altogether, but that’s premature. Windows 10 Mobile is definitely coming down the pipe, new features and all, and it needs something to run on.

What’s more, Nadella has told employees that he’s “committed to our first-party devices including phones.”

Microsoft’s Mobile Future

Nadella goes on to say that Microsoft’s phone business will become more efficient, with “better products” and improved “speed to market” to boot.

“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,” wrote the Microsoft CEO in his email to employees.

In other words, top-end Windows 10 Mobile handsets if you’re the type who absolutely must use a Microsoft-made smartphone, but software that runs everywhere else for the majority who are on iOS and Android.

That’s a sensible strategy in a marketplace where smartphone handsets are only incrementally changing from year to year. Hardware has developed to such an extent that the main battleground could now be software.

And that means Microsoft still wants apps from developers. It now has bridges from Android, iOS, legacy Windows and the Web to its new universal Windows 10 standard, and if it can get enough titles coming down those four channels then it has a chance of building an app store to be proud of.

An app store that will be available on desktops, consoles, laptops, tablets, and—despite today’s cuts—smartphones.

Image courtesy of Microsoft