Microsoft Profits Dip After Nokia Hit

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Profits dip slightly at Redmond, but the Nokia phone unit is expected to break-even within two years

Microsoft’s acquisition of Nokia’s devices business has resulted in a slight hit to profits at the company, capping off a busy month for Redmond, whch recently announced 18,000 employees would lose their jobs in the next 12 months.

Financially, Microsoft revealed that during its fourth quarter ending 30 June, it experienced a slight dip in net profit at $4.6 billion (£2.7bn), or 55 cents (£0.32) per share, compared with $5 billion (£2.9bn), or 59 cents (£0.34) per share, in the same year-ago quarter.

Revenue during the quarter meanwhile rose 17 percent to $23.4 billion (£13.7bn) from $19.9 billion (£11.7bn) a year earlier.

Profit Dip

satya nadella microsoft memo square ish“We are galvanized around our core as a productivity and platform company for the mobile-first and cloud-first world, and we are driving growth with disciplined decisions, bold innovation, and focused execution,” said Satya Nadella, chief executive officer of Microsoft. “I’m proud that our aggressive move to the cloud is paying off – our commercial cloud revenue doubled again this year…”

There is little doubt that the quarter’s profit at Microsoft was hurt by its acquisition of Nokia’s handset business for $7bn (£4.6bn) in April this year. Microsoft said it took a $700 million (£411m) hit to its operating profits from the deal.

Cost-Cutting

But Nadella has acted very aggressively to cut costs, when he revealed earlier this month that Microsoft will 14 percent of its 127,100 strong workforce. Nadella has also pledged to turn Microsoft into a “mobile-first, cloud-first” company.

Microsoft posted an annual net profit of $22 billion (£12.9bn), up from $21.8 billion (£12.8bn) in the previous year. Sales also climbed to $86.8bn (£50.9bn) from $77.8bn (£45.7bn) a year earlier.

Microsoft is being helped by strong sales its Windows operating system, as businesses  migrate from the obsolete Windows XP OS. Sales of its Office suite, databases, and other products all helped contribute to a 10.5 rise here.

And the cloud-related business is also proving profitable for Microsoft, when it said that Office 365 sales more than doubled in the quarter. Total cloud revenue, which includes its Azure computing service, is expected to generate $4.4 billion (£2.6bn) in annual revenue.

Mobile Struggle

The one area that Microsoft needs to improve is mobile, with the current aim get its loss-making Nokia phone unit to break even within two years.

But first Nadella needs to increase the actual sales of Windows Phone handsets, after Microsoft revealed it has sold about 5.8 million Lumia smartphones since it acquired Nokia’s handset business. This compares to 35.2 million iPhones that Apple sold in its most recently completed quarter.

Nadella however is gearing up Microsoft to compete strongly in this sector, as he seeks to refocus the software going forward.

“We will be relentless in our focus on our core, agile work and life experiences and the two platforms that support it, the cloud operating system and the device operating system and hardware,” Nadella was quoted as saying on the call with analysts.

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Author: Tom Jowitt
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