Is Microsoft Corporation Planning To Write Off Nokia Acquisition?

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Is Microsoft Corporation Planning To Write Off Nokia Acquisition?
Hermann / Pixabay

Microsoft, in its recent 10-Q, hinted that it may incur a big write-off for its Nokia acquisition in July if not later, says a report from Computer World. In a filing with the SEC, the software firm noted that its Phone Hardware division, which is mainly Nokia assets, incurred a heavy loss in the last quarter.

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A big write-off expected

Microsoft, which acquired Nokia last year for approximately $7.9 billion, posted revenue of $1.4 billion for the quarter, but lost about 12 cents on each phone sold as the cost of sales surpassed sales by $4 million. The loss is even more if you consider marketing R&D and other expenses. Microsoft hinted to investors that going ahead it may have to write off some of the Nokia acquisition.

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“Given its recent performance, the Phone Hardware reporting unit is at an elevated risk of impairment,” Microsoft said. In such a case, a company should balance the accounts by taking a charge against the earnings to compensate for the performance.

Ben Thompson, an independent analyst, wrote on his Stratechery.com, “A very, very big write-off -— and associated quarterly loss -— is coming soon. What a disaster!”

Microsoft does impairment calculations at the start of May. So, if it decides to write-off any amount related to Nokia acquisition, then it will be doing it in the current quarter (ending June 30), and would announce the same in July, says the report.

Nothing revealed by Microsoft during conference call

Presently, Microsoft’s financial statements show a $5.46 billion in “goodwill” from the acquisition of Nokia, and $4.51 billion in intangible assets. Earlier, the company validated the goodwill saying that the acquisition will increase the synergies, but now, the company is acknowledging that the numbers may be greatly overstated.

“In this highly competitive and volatile market, it is possible that we may not realize our forecast,” the firm said in last Thursday’s 10-Q. The company admitted that in the third-quarter of fiscal year 2015, its Phone Hardware segment failed to hit the sales and revenue target.

However, during the conference call on Thursday, Microsoft’s CFO Amy Hood made no mention of the Nokia write-off, and instead said that the company is making efforts to reduce costs in the division. The executive also noted that the firm’s earlier target of break-even on phones by fiscal year 2016 may be at risk.

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Aman is MBA (Finance) with an experience on both Marketing and Finance side. He has worked as a Risk Analyst for AIR Worldwide, and is currently leading VeRa FinServ, a Financial Research firm. Favorite pastimes include watching science fiction movies, reviewing tech gadgets, playing PC games and cricket. - Email him at amanjain@valuewalk.com
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1 COMMENT

  1. Probably just a tax write off … “Mr taxman, ohhhh we’re in terrible trouble, ohh woh is us, write off all our assets against profits, woh is our company, we’re losing money hand over fist”. lol.

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