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Microsoft’s profit hit hard following Nokia acquisition

July 22, 2014

Microsoft has reported an 18% increase in revenue for the fourth quarter of its financial year, but the cost of integrating Nokia’s handset business hurt profits.

The software heavyweight earned $23.4 billion in revenues during the last three months of the fiscal year, a 18% increase over the previous quarter’s results of $19.9 billion and just ahead of a consensus analyst estimate of $23 billion, according to a poll by Thomson Reuters.

Gains were helped by a doubling of revenues from its cloud business which includes Azure, Microsoft’s cloud platform, as well as an extra $2 billion added from the newly acquired Nokia.

“We are galvanized around our core as a productivity and platform company for the mobile-first and cloud-first world…I’m proud that our aggressive move to the cloud is paying off – our commercial cloud revenue doubled again this year to a $4.4 billion annual run rate,” said CEO Satya Nadella.

But Microsoft also revealed a nearly $700 million cost associated with its purchase of Swedish mobile phone manufacturer Nokia in April for a controversial figure of $7 billion. The company estimated that the Nokia operating loss worked out to around eight cents a share of net income, reducing total net income for the period to $4.6 billion or $0.55 per share, weaker than the $0.60 predicted by analysts polled by Bloomberg.

The drain on operating income from the Nokia deal is likely to last at least through the next fiscal year and help explain why the bulk of the 18,000 job cuts Microsoft announced last week will affect the Nokia side of the business and its manufacturing operations.

In better news, other sources of growth were Microsoft’s internet search engine Bing, which saw advertising revenue increase 40%, while the number of Microsoft Office 365 subscriptions increased 98% year-on-year to 5.6 million users.

Microsoft saw healthy growth in its most important market, enterprise software, which included a 14% rise in revenue from licences for older products like its database software SQL Server and Windows operating software for computer servers. The company also pointed to a boost in sales of software to small-and-medium-sized businesses, which historically have not been its main customers.

In a conference call to investors on Tuesday, Nadella outlined his renewed focus on cloud computing and a push to create a seamless user experience between desktops, tablets and mobile devices.

“We will streamline three operating systems into one system for all devices,” Nadella said Tuesday. “We will be relentless in our focus, everything we do starts with digital life and work experiences.”

This renewed focus will reassure investors who were worried the company was spending too much under previous CEO Steve Ballmer. After his first full quarter as CEO, Nadella’s vision of a mobile-first and cloud-first Microsoft seems to be working out.

Microsoft Corporation – Quarterly EPS (BNRI) | FindTheBest
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Filed Under: Enterprise, Features, North America, Staff Picks

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