Goodwill Gone:
In a recent press release (July 8, 2015), which comes just before its earning release scheduled for July 21, Microsoft’s CEO Satya Nadella announced that the company will record an impairment charge of $7.6 billion related to the acquisition of Nokia Devices and the restructuring the company’s phone hardware business. The company also announced that it will lay-off 7,800 employees and essentially exit the Web display advertising business because it failed to make headway against other hand-held devices using Apple’s and Google’s mobile operating systems.
Goodwill Hunting:
On April 25, 2014, Microsoft acquired Nokia’s Devices and Services (NDS) but overpaid by $5.5 billion (or by 58%) and attributed the overpayment to increased synergies from the integration of NDS. This year, the company is virtually eliminating the entire goodwill recorded in 2014 and is acknowledging publicly that the prior CEO Steve Ballmer overpaid for NDS. Welcome to the “Game of Thrones”!
The Future:
Even after eliminating $5.5 billion of Goodwill, Microsoft will still have more than $14 billion in Goodwill remaining on its books (about 12% of total assets). The last time Microsoft recorded a goodwill impairment charge was in 2012 ($6.3 billion). So investors should embrace for future goodwill impairment charges. Some more truth-telling may follow.
http://news.microsoft.com/2015/07/08/microsoft-announces-restructuring-of-phone-hardware-business/
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