Will Microsoft’s Shuttering Of Phone Hardware Have Any Impact on The Valuation Of The Company?

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Microsoft (NASDAQ:MSFT) announced that it will further write-down $950 million for the smartphone unit and shed up to 1,850 jobs. [1] In 2015, the company had written down impairment charges of $7.5 billion related to Phone Hardware business. [2] As a result of this writedown in 2015, we revised our forecast for phone unit downward. The phone hardware division contributed only 1.2% to Microsoft’s enterprise value (EV). The table below indicates that the loss of sale of revenues from smartphone due to shutdown will have minimum impact on Microsoft’s valuation. On the other hand, the cost saving from cutting employees might offset this loss.

MSFT-Nokia Writedown

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Microsoft

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Notes:
  1. Microsoft to cut 1,850 jobs at struggling smartphone unit, May 25, 2016 []
  2. The Math Behind Microsoft’s Big Nokia Writedown, August 15, 2015 []