Microsoft's Q4 mixed amid Nokia drag

Microsoft's Q4 mixed amid Nokia drag

Summary: Nokia's operating loss of $692 million put the hurt on what was otherwise a solid quarter for Microsoft.


The lesson from Microsoft's fourth quarter can be boiled down to three words: Nokia hardware hurts. Luckily, Microsoft's enterprise business and other businesses can pick up the slack.

Microsoft reported fourth quarter earnings of $4.61 billion, or 55 cents a share, on revenue of $23.38 billion. Wall Street was looking for fiscal fourth quarter earnings of 60 cents a share on revenue of $23 billion.

But the quarter had more than a few moving parts. Consider:

  • Nokia's device business contributed revenue of $1.99 billion in the fourth quarter, but an operating loss of $692 million. Excluding that 8 cents a share hit would give Microsoft earnings of 63 cents a share on a non-GAP basis.
  • Microsoft also had a 4 cents a share gain from ending the Nokia commercial agreement, a 2 cents a share hit for integration and a 5 cents a share hit due to a tax adjustment.

Microsoft's fourth quarter results cap a busy three weeks for the software giant.
In the July 10 memo, CEO Satya Nadella laid out his vision for the company and said "Microsoft is the productivity and platform company for the mobile-first and cloud-first world. We will reinvent productivity to empower every person and every organization on the planet to do more and achieve more."

That memo set the tone for the next week and downgraded the "devices and services" mantra. On July 17, Nadella outlined 18,000 layoffs with 12,500 of them related to Nokia manufacturing. The CEO also said he would make Microsoft more nimble with a flatter structure.

Microsoft's busy July:  Microsoft lays off 18,000 employees | Who else is Microsoft laying off? | Nokia's Android X2 experiment ends | Microsoft to discontinue Nokia Asha and S40 feature phones | Microsoft moves Nokia manufacturing from China to Vietnam | Microsoft layoffs: Operating systems group chief Myerson's memo to the troops | Decoding the hidden messages in Satya Nadella's letter to Microsoft employees | Microsoft CEO Nadella: 'We will reinvent productivity'

In a statement, Nadella said the the company's "aggressive move" to the cloud led to a commercial annual run rate of $4.4 billion a year.

Commercial revenue in the quarter was $13.48 billion, up 11 perent from a year ago. Server products revenue jumped 16 percent. Devices and consumer revenue revenue was $10 billion, up 42 percent from a year ago. Nokia's hardware business boosted sales.

For the year, Microsoft reported earnings of $2.63 a share on revenue of $86.83 billion.

As usual, Microsoft's enterprise business carried the team.


By the numbers:

  • Surface revenue was $409 million due to the introduction of Surface Pro 3. 
  • Nokia sold 5.8 million Lumia smartphones and 30.3 million non-Lumia devices.
  • Consumer Windows OEM revenue was up 3 percent. Windows volume licensing surged 11 percent in the quarter.
  • Office consumer revenue was up 21 percent from a year ago.
  • There are 5.6 million Office 365 subscribers with 1 million additions in the quarter.
  • Search advertising revenue was up 40 percent since Microsoft didn't have to pay revenue guarantees to Yahoo.

Topics: Enterprise Software, Microsoft

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  • I guess this explains the staff shake-up a bit more

    given the new hindsight we have.
    • a Billion here a Billion there

      Pretty soon it adds up to real money.
    • Nope

      Well, no. The staff shake-up is due to the Nokia acquisition redundancy and the new CEO making his changes like stock holders wanted. A one time drop in revenue to 20%, which is still very good, on top of excellent revenue growth could never be considered a bad report.
      Buster Friendly
  • Again no proofreading

    "Summary: Nokia's operating loss of $692 billion put the hurt on what was otherwise a solid quarter for Microsoft."

    That's a hell of a loss.
    • Ya I had to read that twice

      If Microsoft had a loss of $600 billion the company wouldn't exist anymore.
      • Yea

        Yea only governments can lose that kind of money and stick around.
        Buster Friendly
        • Governments don't lose money.

          Also, governments don't stick around for long if they spend money like crazy.

          It all eventually catches up with the government, just like overspending catches up with individuals and companies.
      • Still a typo

        The sad part is that, while the summary was fixed with the right number, it still shows $692B on the front page.
  • Microsoft's Q4 mixed amid Nokia drag

    But overall Microsoft is still profitable. The haters will be disappointed that Microsoft will not be dying any time soon.
    • It's not only a profitable company, but a bigger company because of

      the Nokia purchase, which will eventually grow Microsoft much bigger.

      It takes money to make money, and oftentimes, the initial investments will hurt in the profitability of any company. There is no way that a company can absorb another, without there being "growing pains". The growing pains eventually make for a much bigger and more profitable company. The MS haters keep hoping that MS dies before it becomes a threat to their favored companies, like Apple or Google.
  • Nokia's operating loss of $692 million

    What does this tell us about Nokia's management? Who's been running things over there, and made the decisions that resulted in this loss?
    • Too big

      They're too big. It's like having 20 waitresses and two tables. After the cuts we'll see a different story.
      Buster Friendly
    • Losses were indeed big

      But lumia sales were not that bad, the big losses are probably related with a very low ASP for lumia devices.
      I was expecting less unit sales and smaller losses, maybe Microsoft has still hopes that they can gain important market share, even if they need to sell for cheap.
      • Microsoft could probably give away their smartphones, and still make money

        with them.

        It's all about the after-market sales, which Microsoft has many of them to sell, like Office and others. A recurring monthly revenue stream from a service to those devices, would eventually recoup the price of the devices, and then, it would all be profits after that. It's like the printer makers selling their printers very cheap, but making up the difference with their ink and paper and service contracts.
        • I'm sure MS has the money to offer smartphones to a lot of people

          The question is why would they do that? Win from services? I don't think that strategy would work for them, it's not bringing enough money to compensate the losses and I doubt MS can turn that around anytime soon.
          Microsoft should focus on windows, office, enterprise class services and cloud.
          • AleMartin: MS is already a hardware player, and they'll remain so

            for the duration of the company's lifetime. That might not suit your preferences, but, it's reality already.

            They can be good and great in all of their ventures, including hardware. They've been successful in the past with hardware, and they are already proving to have staying power with their smartphones division. It's only a matter of time before WP has a much more decent percentage of the smartphone market.
    • Well - the guy now responsible for MS's devices strategy.

      What could possibly go wrong?
      • Everytime that guy writes a memo

        10000 people lost their job... sometimes a top 500 company just disappears from the map.
        Being sadly sarcastic here....