Microsoft takes $6.2 billion charge, slows Internet hopes

Mon Jul 2, 2012 6:28pm EDT

A photo illustration shows the websites of search engines Baidu and Bing on computer screens in Shanghai July 5, 2011. REUTERS/Carlos Barria

A photo illustration shows the websites of search engines Baidu and Bing on computer screens in Shanghai July 5, 2011.

Credit: Reuters/Carlos Barria

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(Reuters) - Microsoft Corp admitted its largest acquisition in the Internet sector was effectively worthless and wiped out any profit for the last quarter, as it announced a $6.2 billion charge to write down the value of an online advertising agency it bought five years ago.

The announcement came as a surprise, but did not shock investors, who had largely forgotten Microsoft's purchase of aQuantive in 2007, which was initially expected to boost Microsoft's online advertising revenue and rival Google Inc's purchase of DoubleClick.

The company's shares dipped slightly to $30.35 in after-hours trading, after closing at $30.56 in regular Nasdaq trading.

Microsoft said in a statement that "the acquisition did not accelerate growth to the degree anticipated, contributing to the write-down."

The world's largest software company bought aQuantive for $6.3 billion in cash in an attempt to catch rival Google Inc in the race for revenues from search-related advertising. It was Microsoft's biggest acquisition at the time, exceeded only by its purchase of Skype for $8.5 billion last year. But it never proved a success and aQuantive's top executives soon left Microsoft.

As a result of its annual assessment of goodwill - the amount paid for a company above its net assets - Microsoft said on Monday it would take a non-cash charge of $6.2 billion, indicating the aQuantive acquisition is now worthless.

The charge will likely wipe out any profit for the company's fiscal fourth quarter. Wall Street was expecting Microsoft to report fiscal fourth-quarter net profit of about $5.25 billion, or 62 cents a share, on July 19.

In addition to the write-down, Microsoft said its expectations for future growth and profitability at its online services unit - which includes the Bing search engine and MSN Internet portal - are "lower than previous estimates."

The company did not say what those previous estimates were, as it does not publish financial forecasts.

Microsoft's online services division is the biggest drag on its earnings, currently losing about $500 million a quarter as the company invests heavily in Bing in an attempt to catch market leader Google. The unit has lost more than $5 billion in the last three years alone. Even though its market share has been rising, Bing has not reached critical mass required to make the product profitable.

Before rolling out Bing in June 2009, Microsoft's Windows search engine had 8 percent of the U.S. Internet search market, compared with Yahoo's 20 percent and Google's 65 percent.

In the three years since then, Bing has almost doubled its market share to 15 percent, but that has been mostly at the expense of Yahoo, which has had its share whittled down to 13 percent. Google now has almost 67 percent, according to research firm Comscore.

(Reporting by Siddharth Cavale in Bangalore, Bill Rigby in Seattle; Editing by Supriya Kurane, Bernard Orr; )

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Comments (6)
Harry079 wrote:
“as it took a $6.2 billion write-down on the value of an online advertising company it bought five years ago.”

Sounds kind of ENRONISK.

Jul 02, 2012 5:42pm EDT  --  Report as abuse
meridian555 wrote:
Until the resurrection of Apple and the advent of Google, Microsoft represented a triumph of first rate marketing over first rate engineering. That will always be the case while consumers gradually become more savvy. Short term gain, long term pain.

Jul 02, 2012 5:53pm EDT  --  Report as abuse
Harry079 wrote:
A “Where are they now moment.”

Microsoft paid $6.3 billion for something that today 5 years later is worthless.

Who was the CEO of this now worthless entity and what is he doing today?

“Brian McAndrews is a Managing Director at Madrona Venture Group. Prior to joining the team, he led the Microsoft Advertiser and Publisher Solutions (APS) Group. The APS team is responsible for building and marketing all ad platforms, including Atlas, DRIVEpm, MSNDR, AdCenter and PubCenter, along with emerging media including Atlas On Demand, Massive and ScreenTonic.

Prior to its acquisition by Microsoft in August 2007, Brian ran aQuantive Inc., one the fastest-growing global digital marketing companies in the world, serving as Chief Executive Officer and Director since September 1999, and as President since January 2000.

Another WHALE of a deal!

Jul 02, 2012 5:59pm EDT  --  Report as abuse
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