Microsoft (MSFT) announced today that it would be taking a $7.6 billion write-down charge on last year’s purchase of Nokia’s phone division. It’s also laying off up to 7,800 workers, most of them in its flailing phone business. On top of that, it’s taking restructuring charges between $750 million and $850 million.
So, how did MSFT stock react?
It rose. On a day when most of Wall Street was a sea of red, MSFT stock was up as much as 1% in morning trading.
I can understand why investors are relieved to see Microsoft abandon a project based on what were unrealistic expectations to begin with. Former MSFT CEO Steve Ballmer looked at Apple (AAPL) and, to a lesser extent, Google (GOOG, GOOGL) and said: “I want us to be good at making our own devices, too!”
His solution was to drop $7.2 billion on a handset maker whose market share had declined by 80% in about two and a half years.
Cleaning Up After Ballmer
Ballmer put the Nokia deal together in September 2013, although it didn’t close until April 2014, when current MSFT CEO Satya Nadella was in power. Nadella inherited the $7.2 billion mistake, and now, 15 months later, he’s washing his hands of it, writing the deal down for more than its original cost, to the tune of $7.6 billion.
Ballmer has since moved on to making incredibly poor decisions elsewhere. After leaving his CEO post, he bought the NBA’s L.A. Clippers from disgraced owner Donald Sterling for $2 billion. In April, the team unveiled new jerseys — which Ballmer raved about — that were widely panned for being ugly as sin.
As for the Nokia debacle, it’s a little befuddling that MSFT stock didn’t drop on today’s news. When Hewlett-Packard (HPQ) announced in 2012 that it was taking an $8.8 billion write-down on its $11 billion Autonomy acquisition from the year before, HPQ stock instantly lost 13%.
The two situations aren’t directly comparable; $8.8 billion was 7.5% of Hewlett-Packard’s assets at the time, while the $7.6 billion goodwill impairment represents only 4.3% of MSFT assets as of the end of last quarter. Investors were blindsided by the Autonomy write-down, while everyone knew Nokia wasn’t a game-changer.
And, of course, the HPQ Autonomy write-down wasn’t accompanied by massive layoffs. Still, admitting that it paid $7.2 billion 15 months ago for something worth negative $400 million (remember, $7.6 billion write-down) seems like it should earn MSFT stock a tsk-tsking at the very least.
Perhaps investors are just relieved to be reminded that Ballmer is no longer around, and that Nadella wants to pivot MSFT back to its roots in software. In any case, don’t expect Windows Phone to surge onto the scene anytime soon.
As of this writing, John Divine was long shares of AAPL stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
