Microsoft could begin its first day of the new fiscal quarter by writing off the huge amount it spent on buying Nokia’s business, says a report from Computer World. The software giant has been working on the write off since April, when it stated to the investors that the smartphone division was heading to an “elevated risk of impairment.”
Why Microsoft could go for write-off
Microsoft came out clear in its April 23rd filing with the U.S. Securities and Exchange Commission. The company stated that a drop is expected in the future cash flows, along with a reduction in the future unit volume growth rates, or a spike in the risk-adjusted discount rate used to estimate the fair value of the phone hardware reporting unit may end up showing an impairment adjustment is required, which could significantly affect the earnings.
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A few weeks back, Microsoft CEO Satya Nadella reported the exit of Stephen Elop, the former Nokia head who rejoined Microsoft last year. Furthermore, Nadella spoke about a corporate restructuring under which Terry Myerson, who was heading the operating system division, would now head the device division.
Just last week, Nadella warned the firm was having to make some tough choices, in an email circulated to throughout the company. In the email, the CEO said that the company needs to innovate new areas, execute on current plans and make some tough choices in areas where problems still persist in order to drive customer value.
Will Microsoft close its smartphone unit?
Steve Ballmer, the former CEO of Microsoft, made his last strategic decision to acquire Nokia in February 2014. Although analysts supported the deal, citing it as necessary, the deal has faced criticism as it really has not helped Microsoft’s dwindling fortunes in the mobile market.
Although it is not clear if the company will actually go for a write off, it made a similar move by writing off a big share of its 2007 acquisition of aQuantive ($6.2 billion) on July 2nd, 2012. If Microsoft has decided to write off the majority of the Nokia purchase, then it would likely make the decision public in its next letter to SEC, possibly today.
Some analysts are expecting that the company will go so far as to shutter its smartphone group or quit manufacturing handsets as it is fully engaged in getting Windows 10 ready for a range of devices.