Microsoft’s Sales Increase, Helped by Its Acquisition of Nokia, and Investors Notice

Microsoft’s 3rd quarter profits are just another indication that they are on the right track. Note that commercial cloud sales are up 125% and Office 365 Personal sales are up 25%.  The Surface Pro 3 is also doing nicely.  As Microsoft Lync becomes the leader in unified and universal communication and as Office 365 become the dominate means of delivering email and productivity software to business, we will see this trend continue. Microsoft gets that technology delivered from the cloud to mobile devices is where the need is and Nadella is turning this huge ship in the right direction. – Chris Saah

Microsoft’s Sales Increase, Helped by Its Acquisition of Nokia, and Investors Notice

By Nick Wingfield
October 23, 2014

While the company still has much to prove in markets like mobile phones, Microsoft on Thursday offered tantalizing signs of progress in the transformation of its business. In the last quarter, the company had a 25 percent increase in sales, largely because of its acquisition of Nokia’s mobile phone business.

“Overall, what we see is the increasing competitiveness of our products,” Satya Nadella, Microsoft’s chief executive, said in a conference call with analysts.

For the three months that ended Sept. 30, Microsoft’s fiscal first quarter, the company said its net income was $4.54 billion, or 54 cents a share, compared with $5.24 billion, or 62 cents a share, a year ago. Revenue was $23.20 billion, up from $18.53 billion.

The average estimate of analysts surveyed by Thomson Reuters was 49 cents a share for the period and $22.02 billion in revenue.


The dip in profit was largely the result of $1.14 billion in costs associated with the company’s acquisition of Nokia’s mobile phone business. Without that expense, Microsoft would have reported earnings of 65 cents a share.


In July, Microsoft announced plans to reduce costs by laying off up to 18,000 employees, or about 14 percent of its global work force, by the end of June next year. Most of the cuts are related to the company’s Nokia acquisition.


The results impressed investors, especially when compared with weak results from other technology bellwethers like IBM. “I thought these were stellar numbers in a choppy I.T. spending environment,” said Daniel Ives, an analyst at FBR Capital Markets.


Shares in the company rose 3 percent in after-hours trading.

Microsoft’s resilience stems in part from the reluctance of corporate customers to abandon their deep investments in the company’s products. Microsoft has also tried to differentiate itself from new competitors going after its corporate customers, like Amazon and Google, by giving them options to tiptoe into cloud computing while continuing to run their own software.


The addition of Nokia to its business added $2.6 billion in phone hardware revenue that did not exist for Microsoft during the year-ago period. Without that lift, Microsoft’s overall sales would have grown 11 percent in the quarter.

Microsoft has struggled to find its footing in recent years as the personal computer and traditional software businesses have shown signs of weakness and as newer technologies, like mobile and cloud computing, have surged. Microsoft has stumbled badly in mobile. Nokia’s share of the smartphone market has declined in recent quarters. Microsoft said it sold 9.3 million of its Lumia smartphones in the quarter, representing what it called modest growth from a year earlier.


“We have work to do in phone,” Amy Hood, Microsoft’s chief financial officer, said in a phone interview.


Microsoft has been trying to turn its traditional Office applications business into a cloud business, where customers pay a subscription fee for the product. Microsoft said it now had seven million subscribers to the home and personal version of Office, 25 percent more than in its fiscal fourth quarter.


Even Microsoft’s Surface, its tablet computer, improved in the quarter, with sales rising to over $900 million, from around $400 million a year earlier. “I’m very proud of Surface Pro 3,” Ms. Hood said, referring to the latest version of the product.


Microsoft is hunting for growth opportunities beyond the PC, the device to which its fortunes have been tethered for most of its 39 years. According to IDC, the technology research firm, worldwide shipments of PCs declined 1.7 percent during the quarter, a poor showing for the industry, but a smaller decline than the firm and many investors had expected.


Smartphones and tablets have begun to handle many of the computing chores that were once exclusively performed on PCs. Microsoft sought to reinvigorate the PC market two years ago with the release of Windows 8, an operating system that was designed to power both conventional PCs and touch-based devices like tablets.


But Windows 8 has delivered disappointing results. Recently Microsoft announced plans for a new operating system, Windows 10, that will backtrack from some of the more radical design changes the company made in Windows 8.