It is no surprise that Microsoft has been losing in the mobile wars against giants like Apple and Google. The previous years weren’t easy, but the Redmond giant did see some improvements in Windows Phone adoption. Especially with Nokia on its side, which proved to be the #1 seller of devices running Microsoft’s mobile platform.
Microsoft aims to strengthen their presence in the mobile industry by making its own hardware, which made their acquisition of Nokia an obvious move. What could go wrong? It turns out a lot did.
This $7.9 billion acquisition could very well end up causing an uphill battle for Microsoft. And we are not sure if it’s becasue Microsoft is doing a worse job than Nokia was, or if it’s simply part of how an acquisition goes. The point is numbers for the March quarter have come in and their hardware division is down $4 million, with a $1.4 billion revenue.
There’s a lot of technical, analytic and financial factors that come into play, but we don’t need to get so specific to realize Microsoft is in trouble… at least for some time. This all translates to Microsoft losing about 12 cents per phone, and that is before factoring in costs of marketing, R&D and other expenses.
Furthermore, Microsoft has warned its investors that things may not be looking too bright in the immediate future. The king of computer software may have to write off part of the Nokia acquisition.
“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
Meanwhile, Microsoft is shifting focus to reducing costs as a way to keep their hardware division alive. Some of us believe this was a necessary move, in order to keep Microsoft alive in the smartphone business. Others believe it was one of the worst mistakes, as it is failing to accomplish what any project should – making money.
I suppose what really worries me here is that it could be Microsoft which doesn’t know how to handle hardware. And let’s face it, they were never really a hardware company. Microsoft did software and did it very well, but Nokia was a hardware company from the get-go. The Finnish company ruled the phone market for a long time. Furthermore, Nokia was on the rise before being acquired by Microsoft – how could it be generating losses now?
Ballmer’s last gift to the company may not have been so awesome, after all. I can only hope Microsoft didn’t acquire an amazing phone maker just to have it die on its arms.