Microsoft announced Monday night that it would take a $6.2 billion charge this quarter to reflect the destruction of nearly all of the value of the $6.3 billion deal it made in 2007.
The write-down will more than wipe out Microsoft's profit for the June quarter, which analysts had projected to be about $5.25 billion.
The deal was supposed to help Microsoft catch up to Google Inc. (Nasdaq: GOOG) in the race to profit from online search.
However, Google's U.S. share of search remains about 67%, aided by its own $3.2 billion acquisition of DoubleClick the same year Microsoft bought aQuantive.
Microsoft has managed to increase Bing's share to about 15.4%, but most of its gains have come from search partner Yahoo! Inc. (Nasdaq: YHOO).
And Microsoft continues to bleed cash from search, losing $10.4 billion since 2007 and $2 billion in the past year alone.
Google, meanwhile, used its acquisition of DoubleClick to double its profits to $9.7 billion last year.
The Latest Ballmer Blunder
The disastrous aQuantive deal reflects CEO Ballmer's tendency to overpay for companies that often do little to boost Microsoft's profitability -one of the main reasons the firm's board should fire him.
In an article last week, Money Morning Chief Investment Strategist Keith Fitz-Gerald detailed eight reasons that Steve Ballmer needs to go.
Fitz-Gerald, editor of the investing newsletter Strike Force, included "increasingly ill-conceived acquisitions" on his list.
"Microsoft forked over $605 million for 18% of the Barnes and Noble Nook e-reader and still has no real ability to compete with Amazon's Kindle," Fitz-Gerald said. "It also couldn't seal the deal with Yahoo.... And Microsoft paid $8.5 billion in cash for Skype. Apparently the fact that Skype was not profitable didn't matter. Ballmer's track record suggests to me that he buys businesses that nobody else "must have.'"
Fitz-Gerald pointed out that under Steve Ballmer's 12-year tenure as CEO, Microsoft stock has slumped from $60 a share to about $30 a share.
A few of his other reasons for dumping Ballmer include Microsoft's over-reliance on profits from older products like Windows and Office -- even as customers start to move away from them -- and concern that the billions Microsoft spends on research and development rarely pay off.
The Increasing Microsoft (Nasdaq: MSFT) Aggravation
Fitz-Gerald isn't the first to call for Steve Ballmer's head.
A year ago prominent hedge fund manager David Einhorn publicly called for Ballmerto step down and "give someone else a chance."
At one point, Einhorn compared Ballmer to the haplessPeanuts character Charlie Brown.
"His continued presence is the biggestoverhang on Microsoft's stock," said Einhorn.
Even Microsoft workers take a dim view of their leader. Ballmer consistently is one of the worst-rated CEOs on Glassdoor.com - his employee approval rating is just 46%.
Compare that to the Glassdoor.com rating of several rival CEOs. Google CEO Larry Page has a 94% rating. Jeff Bezos of Amazon.com (Nasdaq: AMZN) gets a thumbs up from 85% of his employees. And Apple Inc. (Nasdaq: AAPL) CEO Tim Cook's rating is a lofty 95%.
In May, Steve Ballmer topped a list in Forbes of five CEOs who should have already been fired.
"Without a doubt, Mr. Ballmer is the worst CEO of a large publicly traded American company today," wrote Adam Hartung, who went on to chastise Ballmer for betting Microsoft's future on Windows 8.
"An insane bet for any CEO - and one that would have been avoided entirely had the Microsoft Board replaced Mr. Ballmer years ago with a CEO that understands the fast pace of technology shifts and would have kept Microsoft current with market trends," Hartung wrote.
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- Money Morning:
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- Associated Press:
Microsoft takes $6.2B hit to account for ad woes
Microsoft takes $6.2 billion charge, slows Internet hopes
- Wall Street Journal:
For Microsoft, It's Not Just the Money Lost, It's the Time, Too
About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.