By Steven D. Jones
Microsoft Corp.'s (MSFT) struggle to win a share of the Web-search business took another blow Monday when it announced it would write down $6.2 billion of goodwill in its online-services division.
The noncash charge won't affect the company's ongoing business or financial performance, the company said. But it shows Microsoft is having difficulty winning over advertisers from Google Inc. (GOOG), which conducts nearly two-thirds of consumer-Web searches and this year will capture nearly 78% of U.S. search revenue, according to research firm eMarketer Inc.
Most of the write-down is connected to the company's 2007 acquisition of online-advertising agency aQuantive Inc. for $6.3 billion. Accounting rules require an annual review of goodwill connected to acquisitions and for companies to write down the value of investments if they have diminished.
Revenue at the online-services division had risen 10.6% through the first nine months of 2012 to $2.1 billion. Analysts estimate the unit will lose about $2 billion in the fiscal year ending June 30. Over the past three years, the division has piled up losses of $6.7 billion.
"While the aQuantive acquisition continues to provide tools for Microsoft's online advertising efforts, the acquisition did not accelerate growth to the degree anticipated, contributing to the write-down," the company said.
"It wasn't a good acquisition," said analyst Colin Gillis of BGC Partners.
Microsoft paid too much for aQuantive and it wasn't a close fit with its search technology, said analyst Trip Chowdhry of Global Equities Research. By the time Microsoft's Bing search engine had integrated aQuantive's technology, Google had leapfrogged ahead.
"In the online space its not about size, its about the fast beating the slow," said Mr. Chowdhry. "Microsoft was too slow."
Microsoft said while the online-services division has been improving the company's expectations for future growth, profits are lower than previous estimates, which led to the write-down.
Microsoft's continued strength in sales of its Office suite of products to corporate customers has helped cushion the company from the impact of slumping personal-computer sales.
In April, the software company said its fiscal third-quarter earnings slid from a year-earlier period that included a tax benefit, as the company reported weaker sales in its entertainment business. The company will report its fiscal fourth-quarter earnings July 19.
Microsoft was trading down 0.6% at $30.37 in after-hours trading. The stock is up 18% so far this year through Monday's close.
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