July 19, 2012 at 4:08 PM ET
Updated at 6 p.m. ET: Microsoft, the once-dominant computer software giant that has seen its fortunes wane in recent years, posted its first quarterly loss since emerging as a public company in 1986 Thursday as it took a huge charge for a failed acquisition.
The Redmond, Wash.-based company reported a net loss of $492 million as its operating income was wiped out by a $6.2 billion writedown related to its acquisition of advertising company aQuantive in 2007. Microsoft wrote down almost the entire $6.3 billion purchase price.
Microsoft had announced earlier this month that it would take the writedown.
The charge was an acknowledgement that the company’s struggling online services division is a significant financial drag on the company, losing nearly $2 billion over the past year in addition to the $6.2 billion writedown. Microsoft is still pouring money into runner-up search engine Bing, but it only has a fraction of the market share rival Google enjoys.
"It brings into question Microsoft’s ability to compete on the advertising-driven web and suggests this is a market segment that is beyond Microsoft, creating long-term doubts over Bing’s future," Rob Enderle, principal analyst at the Enderle Group, said via email.
In its news release announcing the results, Microsoft focused on its record revenues of $73.7 billion for the fiscal year just ended and $18 billion for the latest quarter, up 4 to 5 percent from year-earlier levels. The growth was led by server tools, business products such as Office, and entertainment and devices, which includes Xbox and the recently acquired Skype.
“We delivered record fourth quarter and annual revenue, and we’re fast approaching the most exciting launch season in Microsoft history,” said Steve Ballmer, chief executive officer of Microsoft.
The results were a bit better than Wall Street expectations. Microsoft shares rose 2.5 percent in post-market trading after closing at $30.67 on Nasdaq.
The aQuantive stumble was one of many managerial and operational missteps Microsoft made as the world transitioned from desktops to mobile devices and tablets. In addition to its $6.2 billion disaster of a purchase, Microsoft made another critical mistake in 2007: It failed to recognize the debut of Apple's iPhone as the game-changer it turned out to be and missed the launch of the touchscreen revolution. Its partnership with troubled Finnish cell phone company Nokia notwithstanding, Windows phones barely have a toehold in the iOS-Android duopoly.
Investors hope that the debut of touchscreen- and tablet-friendly Windows 8 this fall will mark a turnaround. Microsoft also just announced the latest version of its highly profitable Office suite of applications.
"Of the products in the pipeline, Windows 8 and Office 15 are the most powerful," Enderle said. But the bungling of the mobile and online ad markets have left some with doubts. "Right now the success of both can’t be taken for granted," he said.
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