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Microsoft Writing Down $6.2 Billion Over AQuantive Deal

Microsoft Corp. (MSFT) is taking a $6.2 billion writedown for almost the entire amount it paid for Internet-advertising company AQuantive Inc., signaling that its online division will perform worse than the company projected.

The non-cash charge means the company will probably post a loss for the quarter, which ended in June. Before yesterday’s statement, analysts had predicted that Microsoft would report profit of $5.3 billion in the period, data compiled by Bloomberg show.

Microsoft bought AQuantive for about $6.3 billion in 2007 to catch Google Inc. (GOOG), amid an acquisition spree for companies that specialize in online advertising. The deal failed to accelerate growth as much as anticipated at the company’s money- losing online division, Microsoft said. The company won’t reverse losses as quickly as it intended, said a person with knowledge of the matter, who’s not authorized to speak publicly.

“Online services is the biggest drag on the company right now,” said Colin Gillis, an analyst at BGC Partners LP in New York, who has a buy recommendation on Microsoft.

Microsoft’s shares climbed less than 1 percent to $30.76 at the close of trading today in New York. It has climbed 18 percent this year.

Photographer: Stuart Isett/Bloomberg

The grand opening of a new Microsoft Store at University Village in Seattle. Close

The grand opening of a new Microsoft Store at University Village in Seattle.

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Photographer: Stuart Isett/Bloomberg

The grand opening of a new Microsoft Store at University Village in Seattle.

‘Slow Improvement’

Even as the AQuantive deal didn’t meet projections, Microsoft said its online division has shown improvement in other areas, including revenue per search and market share gains for the Bing search engine.

Operating losses in online services narrowed to $1.45 billion in the nine months through March 31, from $1.91 billion a year earlier, Microsoft said in April. Sales gained 11 percent to $2.13 billion in the period.

“It’s the classic come-from-behind, slow, incremental improvement,” Gillis said. “Bing has made incremental gains.”

Microsoft agreed to buy AQuantive weeks after Google said it would acquire DoubleClick Inc., which also handles online advertising.

The company had to take the writedown because the online business isn’t growing as quickly as forecast, and it’s taking longer to turn around than Microsoft expected, said the person. The company hasn’t boosted revenue per search as much as it had projected. What’s more, distribution deals in which Microsoft pays companies like Dell Inc. (DELL) and Verizon Wireless have added customers -- though at a high cost, the person said.

“This is an accounting decision that the company made based on how the business is performing relative to the projections we had made during the past five years,” Microsoft Chief Executive Officer Steve Ballmer and online unit President Qi Lu, wrote in an e-mail to employees obtained by Bloomberg.

“We want to be very clear that we are strongly committed to a strong and financially successful” online division, according to the memo, whose authenticity was confirmed by Microsoft.

To contact the reporter on this story: Dina Bass in Seattle at dbass2@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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