Nadella announced Thursday that Microsoft (MSFT, Tech30) will cut 18,000 jobs within the next year, part of his push to slim down the company and narrow its focus.
Analysts see this strategy shift as long-overdue. Microsoft dominated the tech industry when Nadella's predecessor, Steve Ballmer, took over from founder Bill Gates in 2000. But in the years since, Microsoft has sputtered.
Microsoft under Ballmer had been slow to respond to innovations from rivals like Apple (AAPL, Tech30) and Google (GOOG). It launched a series of poorly conceived devices and two poorly received versions of Windows. Observers questioned Microsoft's direction.
The layoffs Microsoft announced Thursday "speak to Nadella's attempt at cleaning up part of the mess that Ballmer left behind," analysts at FBR Capital Markets wrote in a research note.
The house-cleaning also proves that Microsoft is now officially Nadella's company.
Industry observers often suspected that Gates retained ultimate authority at Microsoft during Ballmer's rocky tenure. Nadella has left the issue unambiguous. The company announced that Gates would step down as chairman on the same day Nadella's hiring was made public.
"I run the place," Nadella said at a conference in May. "Bill's helping."
Since taking over, Nadella has said repeatedly that Microsoft must position itself for a "mobile-first, cloud-first world," with a particular focus on productivity software. It's a vision he outlined at length in an open letter to employees last week.
The strategy makes sense given that Windows sales have eroded over the past year-plus. The goal is to make products like Office, Outlook and Skype staples for individual customers regardless of the device they're using, and to transform Windows from a desktop operating system to cloud computing platform that can be accessed from anywhere.
Nadella also made his presence known at Nokia, the last major acquisition Microsoft made during the Ballmer era. Some 12,500 of the layoffs announced Thursday will come from Nokia, many of which were redundancies Microsoft found between the two companies. And Nadella killed off Nokia's plans to make Android smartphones, transitioning the "Nokia X" project to Windows Phone software.
Investors appear enthusiastic about Nadella's moves thus far -- Microsoft shares rose 2% Thursday, and are up nearly 20% since his hiring in February.
It's worth noting, however, that Microsoft has announced a number of major reorganizations since the turn of the century that haven't amounted to much. The challenge for Nadella now is to put his vision into action -- to make Microsoft relevant again in an industry that's been reshaped by its competitors.
"We participated in the PC market," he told analysts in April. "Now we're in a market that's much bigger than the PC market."