Let’s Impair That Goodwill, Part 2

Microsoft fired a number of executives today, including Stephen Elop, an executive that returned to the company following a tenure as Nokia’s CEO. Elop made his way back to Redmond after Microsoft bought the majority of Nokia’s hardware assets.

And thus did Microsoft’s phone chickens come home to roost, and temporarily impair the company’s earnings per share.

Now Elop is out, along with Jo Harlow, who joined Microsoft alongside Elop. The two exits at once are notable not merely for their import in changing how Microsoft approaches its phone work — Windows head Terry Myerson is now running that show — but what it might mean for Microsoft’s balance sheet.

As TechCrunch reported in April, Microsoft made a pretty stark comment on the health of its phone group, which is the underpinning of the goodwill that it carries relating to the Nokia purchase. It’s likely in the billions. If Microsoft has to write down that item, it could easily bork the firm’s single-quarter earnings per share, throw its larger phone strategy into doubt and drive developers to rival platforms.

Or perhaps not, but the tea-leaf train is indicative of something negative. Let’s do this quickly so that we can move on:

1. As Business Insider’s Matt Weinberger wrote at the time of Microsoft’s last earnings report, and I quote this for a second time: “[T]he last time Microsoft used language like this in an earnings report was back in 2012, three months before it took a $6.2 billion charge to its bottom line for its aQuantive acquisition.”

2. Elop exits, along with Harlow, and their group is folded into a larger internal entity.

3. Profit?

3a. Probably not.

For a much longer, more technical look at the potential impacts of the goodwill question, head here. But I think that it’s fair to speculate that, given the warning by the firm, and then the massive internal switcheroo combined with the exits, something is likely afoot.

You can handicap your GAAP and non-GAAP EPS estimates accordingly.

Microsoft declined to comment on the matter.