Microsoft's Q4 mixed amid Nokia drag

Nokia's operating loss of $692 million put the hurt on what was otherwise a solid quarter for Microsoft.
Written by Larry Dignan, Contributor

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.
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