Test reveals Microsoft knew months ago that Windows Phone was faltering

Satya and Stephen

If you remember, Microsoft wrote down its Windows Phone division last month. Well, the company made that decision based on facts it gathered in its annual goodwill for impairment test on May 1 where it found “Phone Hardware goodwill to be impaired”.

Way back at the start of May, the goodwill for impairment test found that phone hardware wasn’t meeting sales or revenue targets in the second half of fiscal year 2015 spanning from May to April. The particulars of the ‘goodwill impairment’ test, which were discovered by Geekwire, were buried in an annual Form 10-K filing release on Friday. The filing said:

…we have forecasted reductions in unit volume growth rates and lower future cash flows used to estimate the fair value of the Phone Hardware reporting unit, which resulted in the determination that an impairment adjustment was required.

Satya Nadella, while initially against the decision to acquire Nokia’s phone business, was head of Microsoft by the time the transition had finalized. You may recall that Microsoft acquired Nokia’s phone business for $7.2 billion back in Sept. 2013 while just last month it wrote off $7.6 billion of that, along with cutting 7,800 jobs. Stephen Elop, who was previously head of Nokia, was one of those to lose his position with Terry Myerson subsuming his duties. Myerson is left to pick up the pieces of Windows Phone which has an expected quarter revenue of less than half what it made in this quarter a year ago.

Windows phone

It’s hard not to think that Windows Phone is a victim of unfortunate scheduling. It’s arguable that while Microsoft concentrated on getting Windows 10 out the door, Windows Phone was left to flounder with the unloved Windows 8.1 era. On top of being associated with the leper of the Windows ecosystem, Nokia and Microsoft churned out countless burner-like phones that arguably squelched what little enthusiasm remained for the platform. If Windows 10 had arrived six months earlier with compelling flagship hardware, perhaps things could have turned out differently.

Now that Windows 10 is finally here and increasing its market share rapidly, its unified app strategy may yet afford Microsoft the opportunity to turn a profit from their phone division. Especially, if the company decides to produce high-priced flagship handsets such as the rumored Surface phone with unique features that Windows 10 enables such as Windows Hello.

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