Microsoft Posts Company's First Loss in History Due to $6 Billion Failed Aquisition
7/19/2012 by: Anshel Sag
For the first time in the company's history as a publicly traded company, Microsoft [NASDAQ:MSFT] posted a net loss for their earnings during a quarter. Microsoft reported a net loss of $492 million on $18.06 billion in revenue. This came as a result of the fact that Microsoft had decided to write down $6.2 billion worth of assets pertaining to their good will part of their balance sheet.
This $6.2 billion write off erased over $5 billion in profits as Microsoft decided to write off the majority of their expected valued assets in their acquired aQuantive business which was acquired back in 2007. This business has since been spun into Microsoft's advertising business, which is part of their OSD business segment, which took the $6.2 billion charge resulting in a net loss of $5.9 billion for that business segment.
In Microsoft's earnings statement they detailed the reasons for the charge to the OSD division,
"OSD operating loss increased $5.9 billion primarily due to a goodwill impairment charge of $6.2 billion, which we recorded as a result of our annual goodwill impairment test in the fourth quarter of fiscal year 2012. The non-cash, non-tax-deductible charge related mainly to goodwill acquired through our 2007 acquisition of aQuantive, Inc. While our search business has been improving, our expectations for future growth and profitability for OSD are lower than our previous estimates. We do not expect the impairment charge to affect OSD’s ongoing business or financial performance.
Excluding the $6.2 billion goodwill impairment charge, OSD operating loss decreased $266 million or 36%, due to higher revenue and lower cost of revenue and sales and marketing expenses."
They state that their expectations for future growth and profitability for OSD are lower than their previous estimates and that this is an asset adjustment to goodwill which they had added to the balance sheet as a result of the $6 billion acquisition price. So, in reality, Microsoft is doing extremely well and posting record revenues and profits. They only chose now to write off this business acquisition in order to make their back-to-school and holiday quarters look better, especially considering the launch of Windows 8 and Windows based Ultrabooks.
Clearly, investors were happy with Microsoft's performance even considering the $6.2 billion write-off for a company that Microsoft paid only $6 billion for. In current trading, Microsoft is up over 2 percent at $31.32.
Microsoft, Earnings, Loss, Company, History, Cloud, Computing, OS, aQuantive, Advertising, Write-Down, Q4 2012, 4Q 2012, 2Q 2012, Q2 2012
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