Earlier this month, Microsoft said its was writing down about 80 per cent of the $US9.4bn deal for Nokia’s handset business and that it would cut more than 6 per cent of its global workforce – mostly in its mobile phone operation – a year after an earlier round of job cuts to the business.
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Chief executive Satya Nadella has been moving to establish subscription revenues for Microsoft products and to boost its cloud computing efforts with Windows lagging in mobile devices.
Sales of Windows to computer manufacturers to install on new PCs fell 22 percent in the quarter.
Although Microsoft is expected to launch Windows 10 Mobile in September, it’s unlikely the operating system will help dig the company out of such a massive hole in terms of public perception and consumer adoption. In the process, Microsoft also plans to lay off 7,800 people mainly from its smartphone group, which will cost it an additional $940 million in restructuring costs like severance packages for a combined $8.4 billion writewdown.
For the full year, Microsoft had a profit of $12.19 billion, or $1.48 a share, down from $22.07 billion, or $2.63 a share, the previous year. “Excluding this impact, operating income and EPS would have been $6.4 billion and $0.62, .62, respectively”, Microsoft explains, trying to point out that its results would have been way better without the write-down. We sold 8.4 million Lumia phones in the fourth quarter compared to 5.8 million in the prior year.
Yet excluding the impact of those charges – which comprised $7.5bn in impairment and another $780m in restructuring fees – Microsoft didn’t actually have that bad of a quarter, or a year. Although Microsoft had touted that acquisition as a major potential growth driver, it apparently was not worth as much as it initially thought.
As for its outlook for the first quarter of fiscal year 2016, Microsoft expects its revenue for phone hardware to be around $900 million.
The performance was buoyed by surprisingly strong sales of Surface tablets, sustained momentum in sales of its cloud services to businesses and 3 million new subscribers to its Office 365 software suite. Moreover, Microsoft saw its overall cloud revenue increase a whopping 106% in the most recent quarter. “We’re seeing proof that preference for our cloud SaaS services creates a flywheel of growth for our cloud platform services”. Microsoft also saw growth in search advertising revenue and Office 365.
In an earnings webcast, Nadella said, “Above all else, I’m optimistic about our future”.
Finally, Windows volume licensing revenue declined eight per cent. “So, they’re slimming down their phone offering, but they’re using hardware to drive results?”
Microsoft’s share price dipped by more than 4 per cent in after-hours trading on the news.
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In the quarter through June, Windows revenue fell 22 percent, hurt by a decline in PC shipments that researchers at IDC pegged at 11.8 percent globally.
