By Shira Ovide
Microsoft Corp. CEO Satya Nadella had warned investors not to
expect much growth from his company for a few months. He was
wrong.
Microsoft's quarterly financial results released Thursday outdid
the low expectations, giving Mr. Nadella breathing room to invest
in new businesses without worrying about second guesses from
investors.
Microsoft said sales in the third quarter ended March 31 rose
nearly 6.5% from a year earlier to $21.7 billion, in part thanks to
the inclusion of sales from Nokia Corp.'s mobile-phone business,
which Microsoft didn't own a year ago. That beat Wall Street
expectations even though a strong U.S. dollar dragged down
sales.
"We did a little bit better in lots of places," Microsoft Chief
Financial Officer Amy Hood said in an interview.
Microsoft in January had cautioned its sales growth would slow
through the summer, as the company ran out of steam for what had
been enviable growth in sales of Windows, Office and other software
sold to businesses.
The company's stock price, and Wall Street's expectations for
the company's financial results, came down as a result.
The continuing weak market for new personal computers, which
propel sales of Microsoft's Windows and Office software, continued
to cut into revenue from those cash-cow products.
But Microsoft more than made up the difference by selling more
of less-heralded products such as software for computer servers and
databases used by corporations.
Overall in the quarter, Microsoft said its net income fell
nearly 12% to $4.99 billion, or 61 cents a share, from $5.66
billion, or 68 cents a share, a year earlier.
Profits fell, partly due to an increase in spending on research
and development, as well as lingering costs from widespread job
cuts the company started last summer.
In a statement that is likely to cheer investors anxious about
Microsoft's foray into making its own computing devices, Ms. Hood
told analysts the company would "aggressively focus" on costs for
its hardware businesses such as Nokia smartphones, Surface
computers and Xbox videogame consoles.
Wall Street analysts haven't been fans of these businesses. In
part, the company's promise of hardware cost discipline reflects
poor sales of Microsoft's smartphones, which constitute a tiny
share of the world-wide market.
Other than Nokia, each of Microsoft's businesses performed well,
including all-important sales of corporate software, where revenue
increased 4.6% from a year ago, besting expectations of 3% to 4%
growth.
Like other big U.S. companies with a significant portion of
sales abroad, Microsoft said the strong U.S. dollar would continue
to pare its revenue growth rate.
Write to Shira Ovide at shira.ovide@wsj.com
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