While a write-off of goodwill is a non-cash accounting maneuver -- no dollars are actually burned -- it is an admission of a mistake, typically that the firm overpaid for what it purchased.
It's not known how much of a write-down Microsoft will take, as companies have some flexibility in how they account for such balance-the-books moves. Three years ago, Microsoft had $6.4 billion of goodwill related to the aQuantive acquisition before it wrote down 97 percent of that.
In its April 2015 filing, Microsoft said it carried $5.5 billion in goodwill from the Nokia deal, as well as another $4.5 billion in intangible assets. Because "goodwill" is the difference between the purchase price and the actual assets, tangible or otherwise, the $5.5 billion, or something close to it, would be the likeliest number.
If Microsoft does write off the majority of the Nokia purchase -- which ultimately cost it $7.9 billion by the time the deal closed in the first half of 2014 -- it would be but the latest move by the company to recast the acquisition. Just two weeks ago, Nadella announced the departure of Stephen Elop, the former chief executive of Nokia who rejoined Microsoft last year. He also unveiled a restructuring of the company's engineering groups that put devices, Elop's bailiwick, under the purview of Terry Myerson, who before that led only the operating system division.
Also out: Jo Harlow, a former Nokia executive who came with Elop to run Microsoft's phone business.
A Nokia write-down would also fit with Nadella's warning last week that "tough choices" face Microsoft. In an all-hands email, Nadella said, "We will need to innovate in new areas, execute against our plans, make some tough choices in areas where things are not working and solve hard problems in ways that drive customer value [emphasis added]."
Few analysts believe that Microsoft will actually shut down its smartphone group or quit manufacturing handsets, in large part because of the resources poured into making Windows 10 for a range of devices, and its developer-aimed pitch to craft "Universal" apps and port those on Android and iOS to Windows 10 Mobile.
Microsoft will hold its next quarterly earnings call with Wall Street on July 21 starting at 2:30 p.m. PT.
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