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Ballmer's phone blunder cost Microsoft US$10 billion

Gregg Keizer | Aug. 5, 2015
Former Microsoft CEO Steve Ballmer's decision to buy the Nokia phone business and current chief executive Satya Nadella's roll-back of that move cost the company $10 billion, most of it paper losses, in the firm's 2015 fiscal year.

Microsoft broke the $7.5 billion down into two parts: Goodwill and intangible assets. Both took a pounding in fiscal 2015.

Microsoft slashed the goodwill it had recorded for the Nokia acquisition from $5.35 billion to just $116 million -- a 98 percent reduction -- and erased all the phone division's intangible assets. "We estimate that we have no significant residual value related to our intangible assets," Microsoft acknowledged.

And what of the $660 million in annual cost savings that Ballmer's regime said would be realized by the Nokia acquisition? Gone, too, as revenue from the Phone Hardware group plummeted and gross margin evaporated.

Nadella has remained firm, however, that Microsoft will continue to manufacture and market smartphones, even after $10 billion has gone up in smoke.

"I think we want to be smart about how many of these phones do we want to generate, how many, which price points we want to participate," Nadella said in an earnings call last month with Wall Street. "That's where you will see the most significant operational changes from how we operated last year to the coming year."

 

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