Microsoft loses ~12 cents on every phone sold

Despite hitting a record 10 million sales in the second quarter of 2015, Microsoft's phone division is in trouble. Competitors, including Apple and Google, are pushing the envelope even further, leaving Microsoft in the dust. Redmond has seemingly chosen to produce only low-end phones with a flagship phone conspicuously absent from the current lineup.

A filing with the Securities and Exchange Commission highlights just how bad things have become. Microsoft acquired Nokia back in 2013 for around $7.2 billion (a figure which has since risen to over $9 billion, according to the filing) and the division, named "Phone Hardware", brought in $1.4 billion in Q3 2015 with the cost of revenue exceeding that figure by $4 million. This means that Microsoft lost around 12 cents per phone according to analysts, even before R&D costs, among other expenses, are applied, despite exceptional unit sales.

The filing talks of a potent write-off of the Nokia acquisition, too. Microsoft describes a "potentially material charge to earnings" as "impairment adjustment is required" due to "[d]eclines in expected future cash flows, reduction in future unit volume growth rates, or an increase in the risk-adjusted discount rate used to estimate the fair value of the Phone Hardware reporting unit." This wording is similar to that which Microsoft issued before taking a $6.2 billion write-off of its aQuantive acquisition.

Microsoft CEO Satya Nadella described a need to "take further action to reduce our costs across devices as we execute on our Windows 10 first-party hardware plans." According to ComputerWorld, Microsoft does its impairment calculations in May, factoring them into its April to June quarter and so if a write-off occurs it would be announced in July.

Source: SEC (via ComputerWorld)

Report a problem with article
Previous Story

Microsoft's Lumia 640 Dual SIM is now available in India for Rs.9,999

Next Story

Android 5.0 Lollipop update heads to the Samsung Galaxy Note 4 on T-Mobile

141 Comments - Add comment

Advertisement