News by Luke Jones on Wednesday July 08, 2015.
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We announced last month that Microsoft will have to write off most of the money it paid for Nokia's Lumia devices division, the third huge write off for the company in as many years. That finality has now been officially announced by the company with a $7.8 billion write off, but it actually gets a lot worse as Microsoft is also cutting 7800 workers.Those employees will come from the smartphone division which is obviously being reducing the Lumia division. While it is of course terrible news for those losing their jobs, investors are likely to be pleased with Microsoft's decision as it is a sign the company is cutting unneeded weight.
The next year is hugely important for Microsoft. The company is launching Windows 10 Mobile later in the year, while new devices and flagships are certainly on the way alongside the fresh OS. However, Redmond may have to take a significant loss as it seems as though the company's handsets are not selling as well as what was expected when Microsoft purchased Nokia's devices and services business. Microsoft aimed to hold 15% of the smartphone market by 2018, the company hoped that Lumia smartphone sales would increase in the years leading to that date. The problem is, sales are not increasing at the levels Microsoft thought, and the brand revealed in a SEC filing that "In this highly competitive and volatile market, it is possible that we may not realize our forecast." The danger is that if Lumia devices fail to gain the traction Microsoft wants that the company will have to write off all or at least some of the near $10 billion it paid for Nokia's hardware business. Of course, Microsoft is not new to huge write offs, Redmond wrote off $6.4 billion after the purchase of aQuantive three years ago, and also wrote off $1 billion worth of its own Surface tablets two years ago. In the third quarter of fiscal year 2015, Phone Hardware did not meet its sales volume and revenue goals, and the mix of units sold had lower margins than planned... Given its recent performance, the Phone Hardware reporting unit is at an elevated risk of impairment. Declines 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 may result in a determination that an impairment adjustment is required, resulting in a potentially material charge to earnings."-Microsoft's 10-Q filing with the SEC
Luke Jones is the Managing Editor at MobileBurn.com and is the person you need to speak to about the content on the site. Luke studied creative writing at degree level before carving out a reputation as a freelance tech writer. He settled here at MobileBurn, where he reviews devices and contributes to the news, as well as overseeing the site's content and direction.