The US company, which entered the phone business in 2014 by buying Finnish firm Nokia's handset unit, said it would "streamline" its smartphone business and close down its research and development site in Tampere, Finland.
"We are focusing our phone efforts where we have differentiation," said chief executive Satya Nadella in a statement.
"We will continue to innovate across devices and on our cloud services across all mobile platforms."
Earlier this month, Microsoft divested its entry-level feature phones business for $350 million (roughly Rs. 2,359 crores).
It bought Nokia's once-dominant handset unit for about $7.2 billion (roughly Rs. 48,529 crores), but it failed to turn the business around and last year announced $7.5 billion (roughly Rs. 50,551 crores) writedowns, and 7,800 job cuts.
© Thomson Reuters 2016