By Shira Ovide
Microsoft Corp. turned in an upside-down financial report for
its fiscal fourth quarter, showing weakness in its usually robust
corporate-software division but strength in some
consumer-technology areas that are traditionally middling.
It also reported a $3.2 billion quarterly loss, a departure for
a company that typically generates reliable profit. The loss
resulted from $8.4 billion in previously announced charges and
layoffs in the company's struggling mobile-phone operation, which
Microsoft acquired last year from Nokia Corp.
"I am proud of the results we delivered," Microsoft Chief
Executive Satya Nadella said on a conference call with
analysts.
Indeed, beyond the mobile carnage, results for the three months
ended June 30 were better than analysts had expected--but sales
growth came from less-profitable areas that Wall Street cares
little about.
The company's shares were down 3.9% to $45.45 in after-hours
trading on Tuesday. In 4 p.m. trading, Microsoft's shares were up
36 cents to $47.28.
Revenue was strong from some products targeted largely at the
consumer market. Sales of the Surface tablet, for instance, more
than doubled from a year earlier to $888 million, and sales of Xbox
game consoles and associated videogame revenue rose 27%. But that
wasn't enough to generate increases in consumer divisions in total,
as revenue fell 13%. Windows revenue took a hit as fewer people
bought new personal computers and sales sagged in the unprofitable
mobile-phone business.
Investors tend to overlook Microsoft's consumer divisions, where
profit margins are lower than in its business products and
services. But Microsoft needs its consumer-focused areas to do well
as it prepares for next week's launch of Windows 10, the latest
version of its operating system for PCs, tablets and
smartphones.
For the first time in the company's history, Microsoft is
letting many people with existing computers upgrade to the latest
Windows free of charge. To make up the lost revenue, the company is
counting on selling those customers add-ons like PC videogames,
Office and Web-search ads. This will be a test for Microsoft, which
historically hasn't been successful selling add-on services to
consumer PC users.
Most of Microsoft's profit comes from sales of Windows, Office,
databases and other corporate software. Total sales of those and
other products sold to businesses rose 0.2% to $13.53 billion in
the fourth quarter--the slowest growth pace in at least two years.
The revenue growth was undermined in part by a strong U.S. dollar
and tough comparisons to a Windows sales surge last year.
In a potential spot of worry for investors, sales growth slowed
in Microsoft's "cloud" software, including Web-friendly versions of
Office for businesses and the Azure service. Cloud software sales
rose 88% from a year ago, but those big gains represent a slowdown
from prior quarters' greater-than-100% growth rates.
"Cloud was strong in the quarter, although some of the bulls
were hoping for a bigger number, and that could be weighing on
shares," FBR Capital Markets analyst Daniel Ives said in an email
Tuesday.
Overall in the quarter, Microsoft's loss came to $3.2 billion,
or 40 cents a share, compared with a year-earlier net income of
$4.6 billion, or 55 cents a share. Excluding the Nokia-related
accounting charges and some costs for prior layoffs, Microsoft said
earnings came to 62 cents a share. The average estimate of Wall
Street analysts called for the company to post earnings, excluding
the Nokia charges, of 56 cents a share.
Revenue fell 5.1% to $22.18 billion. Excluding effects from the
strong U.S. dollar, revenue fell 2%. Analysts polled by Thomson
Reuters expected revenue of $22.03 billion.
Write to Shira Ovide at shira.ovide@wsj.com
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