In Microsoft’s Nokia Debacle, a View of an Industry’s Feet of Clay

Let’s call it the $7.5 billion lesson.

That’s the amount Microsoft wrote off on Nokia’s phone unit, which it bought a little over a year ago for what it said was $9.5 billion. Considering that the deal included $1.5 billion in cash, the write-off means Microsoft now values a business that once controlled 41 percent of the global handset market at just a small fraction of the purchase price. Thanks in large part to the huge accounting charge, Microsoft reported its largest quarterly loss ever ($3.2 billion). It was only the third loss in its history as a public company.

“If you were talking about any other industry, this would be considered a catastrophe that’s the equivalent to a natural disaster,” said Horace Dediu, who spent eight years at Nokia during its heyday and is now at the San Francisco research firm Clayton Christensen Institute, which studies disruptive technologies. This being the technology business, Microsoft’s still relatively new chief executive, Satya Nadella, gets credit for swiftly confronting reality and taking the hit to earnings.