What is Satya Nadella up to?

The ripples are spreading from Satya Nadella’s recent email describing plans to eliminate 7,800 jobs, especially focused on Windows Phone hardware (see Microsoft plans more layoffs). This specifically means cuts of up to 2,300 workers in Finland, most of whom came over in the Nokia acquisition.

The question today — now that the initial shock has worn off — is obvious: what is Satya Nadella’s back story, here? What is the vision of Microsoft and its future that he is steering the company by?

Well, it’s a future without Windows running on mobile phones.

Let’s parse some of what Nadella wrote in the email (hat tip to Paul Thurrott):

In the near term, we will run a more effective phone portfolio, with better products and speed to market given the recently formed Windows and Devices Group. We plan to narrow our focus to three customer segments where we can make unique contributions and where we can differentiate through the combination of our hardware and software. 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.

In the longer term, Microsoft devices will spark innovation, create new categories and generate opportunity for the Windows ecosystem more broadly. Our reinvention will be centered on creating mobility of experiences across the entire device family including phones.

So, a ‘phone portfolio’ is in the near term for Microsoft, but in the longer term, Microsoft ‘devices’ are the key to a Windows ecosystem, relying on others to play. This sounds like Nadella is in a strategic withdrawal from the phone business. Note that the company took a $7.6 billion writedown on the Nokia acquisition made last year, basically zeroing it out.

But is the company is still planning on other devices, like tablets, Xbox, and Hololens? It remains to be seen if Microsoft can make a dent in the tablet world, but Surface is more of a in-betweener: half tablet, half laptop. There’s still opportunity there, between Apple and Android competitors.

Xbox still feels like an outlier that should be spun off, allowing Microsoft to focus on business. Depending on whether Hololens is headed toward next generation gaming or next generation augmented work (like Google Glass’ trajectory), it could fall into either camp.

But new numbers about the collapse of the PC market are likely to add more urgency to Nadella’s efforts to reposition the company around productivity and to distance it from Windows. As reported in the Wall Street Journal, PC shipments dropped around 10% in the second quarter of 2015 (Gartner says 9.5%, and IDC says 11.8%). That’s the largest decline in the nearly two years. Basically, consumers are migrating from PCs to tablets or hybrids. Nadella is reading the tea leaves, and devices aren’t where Microsoft will be playing.

The recent spin out of part of the Bing mapping infrastructure to Uber and ad network software to AOL are also indications of Nadella’s willingness to trim at the edges aggressively.

So, expect to see a resized Microsoft jettisoning Ballmer’s failed bet on phones, refocusing on becoming a productivity and ‘mobility of experience’ powerhouse, and zeroing in on the enterprise.