Microsoft hints it may take a huge write-off for Nokia soon

Microsoft CEO Satya Nadella REUTERS/Robert GalbraithMicrosoft CEO Satya Nadella

Microsoft could take a massive write-off to the tune of $US5.46 billion on its acquisition of Nokia assets as soon as July of this year, according to some industry watchers.

The speculation starts with some language from Microsoft’s quarterly earnings statement from last week, as Computerworld reports.

Basically, Microsoft’s Phone Hardware division — which mostly consists of the assets it bought from Nokia in 2013 for about $US7.9 billion — was spending so much money on sales of Windows Phone hardware that it actually lost around twelve cents per device sold.

That’s before you even factor in all the other costs of doing business, like marketing. In other words, it spent $US1.8 billion to sell $US1.4 billion of phones.

Even with the overall number of phones sold going up, it’s not a great way to run a business, and Microsoft is warning investors that change is coming.

“Declines in expected future cash flows, reduction in future unit volume growth rates, or an increase in the risk-adjusted discount rate used to estimate the fair value of the Phone Hardware reporting unit may result in a determination that an impairment adjustment is required, resulting in a potentially material charge to earnings,” Microsoft said in its report.

This is a fancy way of saying that Microsoft seems to think that the Nokia acquisition isn’t worth the $US5.46 billion value it’s been reporting to shareholders.

It’s possible that Microsoft will only write off part of that $US5.46 billion. But the last time Microsoft used language like this in an earnings report was back in 2012, three months before it took a $US6.2 billion charge to its bottom line for its aQuantive acquisition. That was basically the entire value of aQuantive, which it bought in 2007.

“A very, very big write-off – — and associated quarterly loss – — is coming soon. What a disaster,” wrote industry analyst Ben Thompson on his blog. (Subscription required.)

Computerworld reports that the company usually does these calculations around May — toward the end of its fiscal year, which is June 30 — so this write-off could happen as early as July of this year.

Microsoft’s Phone Hardware division can’t seem to catch a break.

The Nokia acquisition was ex-CEO Steve Ballmer’s final big deal for Microsoft, and new CEO Satya Nadella has repeatedly deemphasized Microsoft’s hardware business as he attempts to refocus the company around software and services. And last year, Microsoft laid off about half the employees it acquired via Nokia.

On the other hand, Microsoft hasn’t abandoned making phones entirely, as it continues to market its Lumia line as a low-cost alternative to pricey Apple iPhone and Samsung Galaxy devices to some success — something that wouldn’t have been possible without this acquisition.

Still, it’s a struggling business for Microsoft.

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