Microsoft Corp. will record a hefty $6.2-billion write-down in its fourth quarter, mostly related to the disappointing performance of an online advertising business it acquired five years ago.
The charge will probably mean a loss for Microsoft in the quarter, which ended in June. The company plans to report its fourth-quarter and fiscal-year earnings July 19. Analysts polled by Bloomberg had estimated that Microsoft would earn about $5.3 billion for the quarter.
The Redmond, Wash., software behemoth said the accounting adjustment, known as a goodwill impairment, was "substantially the result" of buying Internet advertising firm aQuantive for $6.3 billion in August 2007.
Even before Monday's announcement, analysts had criticized Microsoft for its spotty record of acquisitions, including speculation that it had overpaid for aQuantive. A high-profile bid in 2008 for Yahoo Inc. fell through, and its May 2011 acquisition of Internet phone service Skype — for $8.5 billion, its biggest purchase ever — was seen by investors as a big risk.
But Microsoft has to make such moves if it wants to diversify its business, analysts said.
Its Bing search engine lags far behind Google, and its Windows smartphones have not made a significant dent in the market currently dominated by iPhones and Android-powered devices.
Microsoft said that the aQuantive assets it acquired are now worth less than what it paid for them.
"While the aQuantive acquisition continues to provide tools for Microsoft's online advertising efforts, the acquisition did not accelerate growth to the degree anticipated, contributing to the write-down," the company said.
The charge underscores the difficulty Microsoft has had branching out into other markets, as well as the challenge many big tech firms face as they try to find viable ways to drum up online advertising dollars.
Microsoft said Monday that it would take the non-cash charge in its Online Services Division, which includes search engine Bing, MSN and advertiser tools. The company said it did not expect the write-down to affect its ongoing business or financial performance.
"I don't think it necessarily says that Microsoft's online business, which is Bing, is unsuccessful, but I think it's fair to say that aQuantive did not deliver, did not contribute to that business like they were hoping," said James Ragan, an equity analyst at Crowell, Weedon & Co.
Ragan noted that "in the bigger picture, though, it's a non-cash charge."
"It's a hit to earnings, it's a hit to capital, but it's not a hit to cash," he said. "So the year will still be very profitable even after the write-down, and they'll still have a very strong cash flow year."
Microsoft said Monday that although there were some bright spots in its Online Services Division — its Bing search share in the U.S. has been increasing, revenue per search has been growing and its partnership with Yahoo has continued to expand geographically — "the company's expectations for future growth and profitability are lower than previous estimates."
Shares of Microsoft fell 3 cents to $30.56 during regular trading.