An updated guide to deciphering Microsoft's financials

An updated guide to deciphering Microsoft's financials

Summary: Microsoft's fourth quarter 2014 earnings will be the first to factor in impact from the Nokia devices and services business Microsoft acquired in April. Here's how the company's reporting structure will change as a result.

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Microsoft announced a new financial reporting structure a year ago, timed with its July 2013 company-wide reorg.

The five reporting segments outlined at that time included three in Devices and Consumer (D&C) -- D&C hardware, D&C licensing and D&C other -- and two in Commercial -- Commercial licensing and commercial other.

As of its July 22 earnings report for its fourth quarter in fiscal 2014, Microsoft will report the financial performance of Nokia in a new segment called Phone Hardware, which will be part of the Devices and Consumer (D&C) segment. And the current D&C hardware segment will be renamed to Computing and Gaming Hardware.

After this change, the D&C Hardware reporting segement will includes: D&C licensing; Computing and Gaming hardware; Phone hardware; D&C other Hardware. Prior to today, the D&C hardware segment included Surface; Xbox and Xbox Live subscriptions and "other" hardware.

Microsoft officials provided some general guidance on the changes to the reporting categories during the company's Q3 2014 earnings call in April. At that time, officials said:

"Under the existing commercial agreement between Microsoft and Nokia, license sales and platform payments are reported in the D&C Licensing segment. Once the acquisition closes, results for Nokia Devices and Services will be reported in the D&C Hardware segment. For Q4, we will clearly show the impact of the ending of the commercial agreement, Nokia’s ongoing operations and any one-time integration and severance costs. And we remain committed to achieving annual cost synergy targets of at least $600 million within 18 months of close."

One of the ways Microsoft is counting on achieving cost synergy targets is via layoffs of 12,500 Nokia staffers, we know as of last week. Microsoft also announced plans to discontinue the Android-based Nokia X phones and the Asha and S40 feature-phone lines from Nokia.

Microsoft took possession of Nokia's devices and services business on April 25, 2014. 

Topics: Mobility, Microsoft, Nokia

About

Mary Jo has covered the tech industry for 30 years for a variety of publications and Web sites, and is a frequent guest on radio, TV and podcasts, speaking about all things Microsoft-related. She is the author of Microsoft 2.0: How Microsoft plans to stay relevant in the post-Gates era (John Wiley & Sons, 2008).

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16 comments
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  • What is Microsoft ...

    ... going to do about the overheating Lumia 930?
    Wonder.man
    • Wrong post for that question, but...

      I can tell you as a Lumia 929 (Icon) user, the phone ran VERY hot when I first got it. Now it runs lukewarm. Doubtful this is being treated as something they need to "fix" -- unless you have seen/heard otherwise somewhere. MJ
      Mary Jo Foley
  • So why cancel Asha phones when 5x sales of Lumias ?

    Asha sales of around 25 million, and Lumias dwindling to less than 6 million in last quarter. Microsoft either does not understand the feature phone market in third world, or is just callous and malicious in laying off 12000 Nokia staff, without any consideration of selling off Nokia: Asha production line to a someone who cares.

    Shameful or Stupid ?
    JulesVerny
    • Not that bad

      Microsoft is selling phones since the end of April, so the 5.8 million lumia is not that bad - I was expecting less than that I admit.
      One thing seems obvious though, the average selling price of lumia smartphones must have been very low, but asha line ASP is for sure even less interesting.
      AleMartin
      • the sales number was only for 2 months not the full quarter

        That would put it at around 8.7 for 3 months.
        greywolf7
        • 8 million

          Give it or take it. That's an improvement from the last quarter, but down from 8.8 million during the best quarter for lumia.
          Unit sales were not terrible bad, but the operation losses almost doubled from the previous quarter.
          Basically they are giving away phones.
          I believe global growth for smartphones was a bit bigger than lumia sales growth, so WP might have lost share.
          AleMartin
    • get a clue

      From Jan 2014
      "Nokia reported that sales for the business fell 29% in 2013 to $2.63 billion euros ($3.6 billion) Worse, the business saw its loss for the year climb to 201 million euros, or nearly $275 million, from 51 euros, or $69.7 million. Microsoft is paying close to some $7.2 billion for the unit.

      The problem looks primarily to be Nokia’s lower-end Asha line of phones, whose sales have fallen along with prices. Nokia’s high-end Lumia business did fairly well in the fourth quarter, with sales of some 8.2 million units, double the sales of a year ago."

      Asha was dead already.
      greywolf7
    • Microsoft needs to turn this around quick!

      The momentum Windows Phone was gaining in 2013 seems to have stalled. Perhaps it's because Microsoft insists on releasing "niche" phones like the 1020 and 1520 during the holiday season instead of giving us what we keep asking for--a 920 replacement with expandable storage and blah blah blah.

      Time and time again, Microsoft insists on giving us what THEY want instead of giving us--the fans of Windows Phone--what we very vocally ask for over and over and over again. Wake up already, Microsoft.

      It's great that they're giving us options like the 1020 and 1520... but don't forget the flagship!!!
      cybersaurusrex
      • There was no momentum in 2013.

        Microsoft is as dead in mobile now as it ever war. Dead, baby, dead.
        MSFTWorshipper
    • Asha = money

      Asha can continue to produce already developed phones and sell some of them for a long time, at ever diminishing quantities. But they no longer need to develop and launch new Asha phones, or be ready to start new factory lines for new Asha phones, or acquire new types of materials for new Asha phones. To make money with Asha, they need to produce the existing phones at even lower cost. That's what's getting rid of the work. On the higher end of the low end phones (75-150$ unsubsidized), Asha doesn't look too good compared to Android and Windows Phone, and the prices of those will only go lower.
      Sacr
  • Gigantic disaster

    So they are giving away Windows Phone now and beside Nokia, nobody is selling it, and even Nokia "the flagship" is bleeding red. At least Microsoft receives some money from Android!
    theo_durcan
    • It's freaking hilarious in't it?

      Meanwhile I'm rocking my iPhone, iMac, iPad, iPod, iCloud. I'm a happy man with a smile on my face after throwing away the Microsloth crapware forever!
      MSFTWorshipper
      • But question is?

        Why are you here, you clearly do not have a vested interested in the Microsoft ecosystem?
        Jeff Richardson
        • Just enjoying the conversation, Jeff

          ...but why are you here? meaning, do you have a vested interest in MS's ecosystem? I don't.
          theo_durcan
      • But question is?

        Why are you here, you clearly do not have a vested interested in the Microsoft ecosystem?
        Jeff Richardson
      • Enjoy your iGasm

        I don't final any value in your comment--none.
        hagemand