Skip to main content

Microsoft is losing money on Windows phones

Microsoft is losing money on Windows phones

Share this story

Microsoft could be about to write-off billions of dollars related to its Nokia phone business acquisition. In a filing with the US Securities and Exchange Commission (SEC) last week, the software giant revealed that its phone hardware has been losing money. Revenue was $1.4 billion for the quarter ended March 31st, and the cost of that revenue exceeded sales by $4 million. ComputerWorld reports that Microsoft lost around 12 cents per phone, even before the costs of marketing and R&D are even considered.

While that’s not particularly surprising given Microsoft’s focus on low-end handsets, the software giant also warned that it may need to write-off some of the Nokia phone business acquisition. "Given its recent performance, the Phone Hardware reporting unit is at an elevated risk of impairment," warned Microsoft. "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 also warns its $5.46 billion in "goodwill" from the Nokia deal may be overstated. "In this highly competitive and volatile market, it is possible that we may not realize our forecast," reads the filing.

Similar warnings in the past

Microsoft used a similar warning just before it took a $6.2 billion charge related to its acquisition of the Quantive marketing company back in July 2012. That acquisition was managed by former CEO Steve Ballmer, and the Nokia acquisition was his parting gift to the company ahead of his departure last year. That parting gift reportedly generated some heated debate amongst Microsoft’s board members. Ahead of the deal, Ballmer reportedly shouted loudly after the board rejected a deal involving Microsoft acquiring both Nokia’s phone and mapping businesses. Microsoft’s current CEO, Satya Nadella, reportedly voted against the Nokia deal at the time, before siding with Ballmer eventually.

Nadella has started to hint at issues with Microsoft’s phone business recently. While Lumia sales have increased 18 percent year over year, this is a small increase compared to the amount required to push Microsoft’s Windows Phone platform forwards. "We need to take further action to reduce our costs across devices as we execute on our Windows 10 first-party hardware plans," admitted Nadella last week, showing that the company is concerned about its mobile costs moving forward.