8 ms·

"Microsoft will record an impairment charge of about $7.6 billion on its Nokia handset unit" Wow, well there it is--looks like the rumor is true. So the Nokia

by tdicola 11y ago

"Microsoft will record an impairment charge of about $7.6 billion on its Nokia handset unit" Wow, well there it is--looks like the rumor is true. So the Nokia deal was basically a complete flop?

exelius 11y ago
This is actually amazing. Between Nokia and aQuantive, Microsoft dumped over $14 billion into two failed acquisitions. I can't recall another company over the last decade that has had a total write-off of that scale (well, maybe the HP-Autonomy thing, but there was likely some fraud involved there). I have absolutely no idea why they purchased Nokia in the first place -- it was obvious that they were never going to seriously challenge Apple or Google, and Nokia was another obviously sinking ship. It was like if Circuit City had purchased Radio Shack. I have no idea why the board let Ballmer blow billions on an acquisition they knew he wouldn't be around to see through and that didn't fit with the strategic direction of the company 6 months later. If I were an institutional investor, I would demand a change in board leadership. This kind of stuff is just unacceptable for a public company. I know hindsight is 20/20, but blowing $14 billion on acquisitions that were doomed to begin with is simply inexcusable. You can blame Ballmer for being a terrible CEO, but the blame really rests on the board for allowing him to make really big, really bad decisions.
- a1b2c3 11y ago
  You're assuming the board knew any better. For all you know, Ballmer fought against it. They could have been screaming at him to get into phones and he found a solution. Full disclosure I revel in the demise of MS.
  - tdicola 11y ago
    No Balmer was known to have thrown a temper tantrum and was ready to quit on the spot if the board didn't approve of the Nokia purchase: http://www.computerworld.com/article/2475938/it-management/steve-ballmer-s-temper-tantrum-over-nokia-buyout-led-to-his-firing--says-report.html http://www.computerworld.com/article/2475938/it-management/s...
    - a1b2c3 11y ago
      Oh wow, well then; lol I guess.
- T-A 11y ago
  If Nokia had gone under (or switched to Android in a last-ditch attempt to shore itself up) there would have been 0 manufacturers of Windows Phone hardware left. That would have been the end of it. I guess Microsoft looked at how much they had already invested in Phone, compared that to the bill for Nokia, and decided they weren't ready to pull the plug yet.
  - shadowmint 11y ago
    Yeeesss... but $9.5 billion is, to put it mildly, a lot of money. It's a little hard to suggest that for that price tag they didn't have any other options to manufacture devices.
    - T-A 11y ago
      With what lead time? The sequence of events would have been: (1) Nokia dies. (2) Devices already in the channels are cleared out at deep discounts (only way since there will be no upgrades, support, spare parts etc). (3) The media proclaims Windows Phone dead since nobody makes devices anymore. (4) Six months to a year later, the first Microsoft phones come out. Nobody even notices, since the platform has already been declared dead.
- throwawaykf05 11y ago
  1. Nokia was pretty much the only real manufacturer of Windows Phone. Did they really have a choice? Microsoft does not seem to be the type to give up on their bets easily, and it sometimes pays off. For instance, as I recall, that's where they started with Xbox and Bing, and both products are doing well now. 2. Even though their relative market share is low, keep in mind the market is huge and so in absolute numbers, they are selling quite a few Lumias. Millions of devices every quarter is a pretty decent number, and something that could be leveraged in various ways. Not a direct comparison, but note that until 2007 Apple ran their entire business on products that had minority market share. 3. Not very familiar with the aQuantive deal - how was it doomed to begin with?
  - Someone1234 11y ago
    Little bit of a tangent here: Is Bing doing well? We all agree that XBox is a huge success, but given that Bing just gave away its display advertising to AOL all to gain trivial market share, and is still paying users $5/month to use Bing, you have to wonder if Bing is really successful or just held up. I actually don't "hate" Bing. I find their answers to questions directly in results slightly better than Google's version of the same. But I still use Google as they have more historical search data to utilise so results remain more accurate (and will almost indefinitely). Bing also seems to choke on technical queries and special characters more often.
    - IndianAstronaut 11y ago
      Bing may he a failure but it may hold on to certain niche searches like adult content.
      - sremani 11y ago
        Bing is powering Yahoo, Bing/Cortana and Siri. With Windows 10 having baked in Cortana, Bing will a lot more footprint. Bing is the farthest thing from failure, they are making money as of now, the whole sinking money into bing and xbox is really really old news.
- drzaiusapelord 11y ago
  MS was, and is still, in a very ugly position in regards to mobiles. They sat and watched Apple move in not only on music players, but phones, and later tablets. MS's offerings were all milquetoast desktop and laptop offerings and its migration from its old Windows Mobile product to Windows Phone took forever with the early versions being pretty uncompetitive. MS saw what Google's relationships with its OEMs was like (reskinning, not doing updates, in-fighting, threats to move to tizen/sailfish, endless compromises, bloatware, etc) and wanted nothing of that. They thought if they had a tried and true phone hardware division with a known brand that they could leapfrog into the market. Well, it didn't happen, even though the Nokia Windows phones were fairly well received, especially if you're price sensitive. They entered the market pretty late and by then both the Android and Apple store were chock-full of apps. That's on top of MS having a stodgy business image that consumers find unappealing. To be fair, MS sells millions of these things per quarter, so they're not exactly failures. They're just a distant third. (8.6 million last quarter according to windowscentral.com). My guess is that the US market just isn't price sensitive, so a good but cheap phone was largely unappreciated. The two year contract carrier deals hide the price of the phone, so its "easy" to get the hottest iphone or android. I think WP is a lot more popular in the EU where you usually buy your phone outright. Things like the Xiaomi lineup, the Moto G/E, and Android One were very much an attack on MS's focus on the low-end, and I think greatly hurt MS's low-end sales. Without those sales this acquisition wasn't going to pay off.
  - exelius 11y ago
    Yeah, but quality at the low end had to be a trend they saw coming. Apple and Samsung commoditized high-end manufacturing -- you need a lot of expensive equipment to build iPhones and Galaxy phones, but that equipment is a lot less expensive when it's being sold off to make room for newer, more expensive equipment. So low-end manufacturers can buy it and start churning out high quality, low cost phones. And I don't doubt that Microsoft can be #3 in the phone market; I just don't think it's a worthwhile thing for them to aspire to do as a company. They will be perpetually fighting for market share, and that will tempt them to leverage their other products in ways that forego other potentially more profitable strategies for those other products. The phone market is a distraction for them at this point; and I wouldn't be shocked at all if they spin off the entire consumer electronics division (including Xbox) in the next 5 years.
- mohamedattahri 11y ago
  The board did change. Satya was hired by a different board composition than the one who approved the Nokia acquisition.
- VLM 11y ago
  "It was like if Circuit City had purchased Radio Shack." Better analogy would be as if Kmart purchased Sears, which they did back in '04, to pretty much the same outcome. Sometimes I think terminally ill companies thrash around like this to generate transactional cash flow for friends and family, to help the leadership get jobs elsewhere after the ship finally sinks.
  - fredkbloggs 11y ago
    > Sometimes I think terminally ill companies thrash around like this to generate transactional cash flow for friends and family, to help the leadership get jobs elsewhere after the ship finally sinks. What do you think the rest of the time?? This is exactly what they do. A company doing as badly as these in the 19th century would have been wound down and the remaining assets distributed to stockholders. Today they take on debt, "restructure" endlessly, file for bankruptcy protection (usually more than once) and churn, churn, churn to keep those senior managers employed just a little bit longer. Meanwhile the stockholders, who would have taken a moderate loss under a liquidation scenario, instead get wiped out completely. Directors these days are basically extensions of senior management; they'll approve of pretty much anything the CEO wants to do as long as it's not (a) winding down or (b) an indefensible violation of their legal obligations. M&A is a very popular way to be seen to "do something"; it's a standard act in the CEO's keeping-your-job-for-a-while-longer playbook. In this case, it also allows the next CEO to use the blame the last guy tactic along with the big "one-time" writedown to buy himself some more time. All standard 21st-century corporate behavior.
    - emodendroket 11y ago
      I don't know that Microsoft, which still continues to have products like Windows and Office that generate lots of money, really falls into this category.
      - VLM 11y ago
        Eventually a company/conglomerate is big enough that sharing a financial structure means little. GE, for example, has locomotive making divisions sharing a finance structure with MRI software divisions. Claiming they really have anything in common is pointless, like saying Caterpillar and BP are the same because they share the NYSE as a common financial structure. Given that, its an open debate if Microsoft is big enough, conglomerated enough, internally disconnected enough, such that success or failure in monopoly Office app licensing has anything to do with console gaming hardware. If they share little more than common ownership and financial structure, then we're back to "Caterpillar and BP are the same because they both have owners/shareholders on the NYSE" argument. If MS went poof and spun off all its divisions, would there really be much effect on the divisions, other than the losing ones would run out of cash and the winning ones would have way too much cash? I guess another bad analogy is GE is just a big mutual fund that 100% owns dozens of completely unrelated large companies. And its a fair claim that MS is the same although obviously much smaller.
T-A 11y ago
They paid $7.2 billion for it [1], so it actually looks like a net loss. I guess there might be tax aspects which make it a good idea to take a big writeoff now. [1] http://www.computerworld.com/article/2488599/it-management/microsoft-completes--7-2b-acquisition-of-nokia.html http://www.computerworld.com/article/2488599/it-management/m...
toyg 11y ago
Well, they took out a competitor, didn't they? So not a complete flop, just a very "old-school acquisition".
- Torn 11y ago
  I assume the writedown will mean less tax on profits also?
- emodendroket 11y ago
  I'm not sure picking off one of the weakest players in the market for that price is such a good deal.
- burnte 11y ago
  The only company making phones with your mobile OS is not a competitor.

by tdicola 11y ago

"Microsoft will record an impairment charge of about $7.6 billion on its Nokia handset unit" Wow, well there it is--looks like the rumor is true. So the Nokia deal was basically a complete flop?

exelius 11y ago

This is actually amazing. Between Nokia and aQuantive, Microsoft dumped over $14 billion into two failed acquisitions. I can't recall another company over the last decade that has had a total write-off of that scale (well, maybe the HP-Autonomy thing, but there was likely some fraud involved there). I have absolutely no idea why they purchased Nokia in the first place -- it was obvious that they were never going to seriously challenge Apple or Google, and Nokia was another obviously sinking ship. It was like if Circuit City had purchased Radio Shack. I have no idea why the board let Ballmer blow billions on an acquisition they knew he wouldn't be around to see through and that didn't fit with the strategic direction of the company 6 months later. If I were an institutional investor, I would demand a change in board leadership. This kind of stuff is just unacceptable for a public company. I know hindsight is 20/20, but blowing $14 billion on acquisitions that were doomed to begin with is simply inexcusable. You can blame Ballmer for being a terrible CEO, but the blame really rests on the board for allowing him to make really big, really bad decisions.

a1b2c3 11y ago
You're assuming the board knew any better. For all you know, Ballmer fought against it. They could have been screaming at him to get into phones and he found a solution. Full disclosure I revel in the demise of MS.
- tdicola 11y ago
  No Balmer was known to have thrown a temper tantrum and was ready to quit on the spot if the board didn't approve of the Nokia purchase: http://www.computerworld.com/article/2475938/it-management/steve-ballmer-s-temper-tantrum-over-nokia-buyout-led-to-his-firing--says-report.html http://www.computerworld.com/article/2475938/it-management/s...
  - a1b2c3 11y ago
    Oh wow, well then; lol I guess.
T-A 11y ago
If Nokia had gone under (or switched to Android in a last-ditch attempt to shore itself up) there would have been 0 manufacturers of Windows Phone hardware left. That would have been the end of it. I guess Microsoft looked at how much they had already invested in Phone, compared that to the bill for Nokia, and decided they weren't ready to pull the plug yet.
- shadowmint 11y ago
  Yeeesss... but $9.5 billion is, to put it mildly, a lot of money. It's a little hard to suggest that for that price tag they didn't have any other options to manufacture devices.
  - T-A 11y ago
    With what lead time? The sequence of events would have been: (1) Nokia dies. (2) Devices already in the channels are cleared out at deep discounts (only way since there will be no upgrades, support, spare parts etc). (3) The media proclaims Windows Phone dead since nobody makes devices anymore. (4) Six months to a year later, the first Microsoft phones come out. Nobody even notices, since the platform has already been declared dead.
throwawaykf05 11y ago
1. Nokia was pretty much the only real manufacturer of Windows Phone. Did they really have a choice? Microsoft does not seem to be the type to give up on their bets easily, and it sometimes pays off. For instance, as I recall, that's where they started with Xbox and Bing, and both products are doing well now. 2. Even though their relative market share is low, keep in mind the market is huge and so in absolute numbers, they are selling quite a few Lumias. Millions of devices every quarter is a pretty decent number, and something that could be leveraged in various ways. Not a direct comparison, but note that until 2007 Apple ran their entire business on products that had minority market share. 3. Not very familiar with the aQuantive deal - how was it doomed to begin with?
- Someone1234 11y ago
  Little bit of a tangent here: Is Bing doing well? We all agree that XBox is a huge success, but given that Bing just gave away its display advertising to AOL all to gain trivial market share, and is still paying users $5/month to use Bing, you have to wonder if Bing is really successful or just held up. I actually don't "hate" Bing. I find their answers to questions directly in results slightly better than Google's version of the same. But I still use Google as they have more historical search data to utilise so results remain more accurate (and will almost indefinitely). Bing also seems to choke on technical queries and special characters more often.
  - IndianAstronaut 11y ago
    Bing may he a failure but it may hold on to certain niche searches like adult content.
    - sremani 11y ago
      Bing is powering Yahoo, Bing/Cortana and Siri. With Windows 10 having baked in Cortana, Bing will a lot more footprint. Bing is the farthest thing from failure, they are making money as of now, the whole sinking money into bing and xbox is really really old news.
drzaiusapelord 11y ago
MS was, and is still, in a very ugly position in regards to mobiles. They sat and watched Apple move in not only on music players, but phones, and later tablets. MS's offerings were all milquetoast desktop and laptop offerings and its migration from its old Windows Mobile product to Windows Phone took forever with the early versions being pretty uncompetitive. MS saw what Google's relationships with its OEMs was like (reskinning, not doing updates, in-fighting, threats to move to tizen/sailfish, endless compromises, bloatware, etc) and wanted nothing of that. They thought if they had a tried and true phone hardware division with a known brand that they could leapfrog into the market. Well, it didn't happen, even though the Nokia Windows phones were fairly well received, especially if you're price sensitive. They entered the market pretty late and by then both the Android and Apple store were chock-full of apps. That's on top of MS having a stodgy business image that consumers find unappealing. To be fair, MS sells millions of these things per quarter, so they're not exactly failures. They're just a distant third. (8.6 million last quarter according to windowscentral.com). My guess is that the US market just isn't price sensitive, so a good but cheap phone was largely unappreciated. The two year contract carrier deals hide the price of the phone, so its "easy" to get the hottest iphone or android. I think WP is a lot more popular in the EU where you usually buy your phone outright. Things like the Xiaomi lineup, the Moto G/E, and Android One were very much an attack on MS's focus on the low-end, and I think greatly hurt MS's low-end sales. Without those sales this acquisition wasn't going to pay off.
- exelius 11y ago
  Yeah, but quality at the low end had to be a trend they saw coming. Apple and Samsung commoditized high-end manufacturing -- you need a lot of expensive equipment to build iPhones and Galaxy phones, but that equipment is a lot less expensive when it's being sold off to make room for newer, more expensive equipment. So low-end manufacturers can buy it and start churning out high quality, low cost phones. And I don't doubt that Microsoft can be #3 in the phone market; I just don't think it's a worthwhile thing for them to aspire to do as a company. They will be perpetually fighting for market share, and that will tempt them to leverage their other products in ways that forego other potentially more profitable strategies for those other products. The phone market is a distraction for them at this point; and I wouldn't be shocked at all if they spin off the entire consumer electronics division (including Xbox) in the next 5 years.
mohamedattahri 11y ago
The board did change. Satya was hired by a different board composition than the one who approved the Nokia acquisition.
VLM 11y ago
"It was like if Circuit City had purchased Radio Shack." Better analogy would be as if Kmart purchased Sears, which they did back in '04, to pretty much the same outcome. Sometimes I think terminally ill companies thrash around like this to generate transactional cash flow for friends and family, to help the leadership get jobs elsewhere after the ship finally sinks.
- fredkbloggs 11y ago
  > Sometimes I think terminally ill companies thrash around like this to generate transactional cash flow for friends and family, to help the leadership get jobs elsewhere after the ship finally sinks. What do you think the rest of the time?? This is exactly what they do. A company doing as badly as these in the 19th century would have been wound down and the remaining assets distributed to stockholders. Today they take on debt, "restructure" endlessly, file for bankruptcy protection (usually more than once) and churn, churn, churn to keep those senior managers employed just a little bit longer. Meanwhile the stockholders, who would have taken a moderate loss under a liquidation scenario, instead get wiped out completely. Directors these days are basically extensions of senior management; they'll approve of pretty much anything the CEO wants to do as long as it's not (a) winding down or (b) an indefensible violation of their legal obligations. M&A is a very popular way to be seen to "do something"; it's a standard act in the CEO's keeping-your-job-for-a-while-longer playbook. In this case, it also allows the next CEO to use the blame the last guy tactic along with the big "one-time" writedown to buy himself some more time. All standard 21st-century corporate behavior.
  - emodendroket 11y ago
    I don't know that Microsoft, which still continues to have products like Windows and Office that generate lots of money, really falls into this category.
    - VLM 11y ago
      Eventually a company/conglomerate is big enough that sharing a financial structure means little. GE, for example, has locomotive making divisions sharing a finance structure with MRI software divisions. Claiming they really have anything in common is pointless, like saying Caterpillar and BP are the same because they share the NYSE as a common financial structure. Given that, its an open debate if Microsoft is big enough, conglomerated enough, internally disconnected enough, such that success or failure in monopoly Office app licensing has anything to do with console gaming hardware. If they share little more than common ownership and financial structure, then we're back to "Caterpillar and BP are the same because they both have owners/shareholders on the NYSE" argument. If MS went poof and spun off all its divisions, would there really be much effect on the divisions, other than the losing ones would run out of cash and the winning ones would have way too much cash? I guess another bad analogy is GE is just a big mutual fund that 100% owns dozens of completely unrelated large companies. And its a fair claim that MS is the same although obviously much smaller.

T-A 11y ago

They paid $7.2 billion for it [1], so it actually looks like a net loss. I guess there might be tax aspects which make it a good idea to take a big writeoff now. [1] http://www.computerworld.com/article/2488599/it-management/microsoft-completes--7-2b-acquisition-of-nokia.html http://www.computerworld.com/article/2488599/it-management/m...

toyg 11y ago

Well, they took out a competitor, didn't they? So not a complete flop, just a very "old-school acquisition".

Torn 11y ago
I assume the writedown will mean less tax on profits also?
emodendroket 11y ago
I'm not sure picking off one of the weakest players in the market for that price is such a good deal.
burnte 11y ago
The only company making phones with your mobile OS is not a competitor.