Microsoft beat Wall Street expectations for revenue but fell short in earnings per share in its fiscal fourth quarter earnings, reported today.
For the quarter ended June 30, Microsoft reported revenue of $23.38 billion, profit (net income) of $4.61 billion and earnings per share of 55 cents.
Analysts were expecting Microsoft to report for the quarter revenue of $23.01 billion with earnings per share of 60 cents and profit of $5.04 billion, according to a Bloomberg survey of analysts.
For the year-ago quarter, Microsoft posted revenue of $19.9 billion with earnings per share of 59 cents and profit (net income) of $4.97 billion. (Those figures reflected a $900 million write-down of Surface RT inventory related to a price-reduction offer for those devices. Adjusted for that write-down, Microsoft said earnings per share would have been 66 cents.)
Chris Suh, Microsoft’s general manager of investor relations, said the lower-than-predicted earnings per share reflected the fact that Microsoft had not offered guidance on the impact its acquistion of Nokia’s phone business, which closed in April. (Microsoft had not offered the guidance, he said, because “we didn’t have a point of view on the business that I would consider to be reliable enough for us to stand behind at that point.)
Suh said that taking into account the ongoing operations of the acquired Nokia business, plus some items including a catch-up on prior-year taxes that was recognized in the quarter, earnings per share for the quarter representing core Microsoft earnings growth would have been 66 cents.
For fiscal year 2014, Microsoft reported revenue of $86.83 billion, profit (net income) of $22.07 billion and earnings per share of $2.63.
Analysts were expecting Microsoft to report revenue of $86.46 billion with earnings per share of $2.69 on profit of $22.54 billion, according to a Bloomberg survey of analysts.
For the fiscal year 2013, Microsoft had posted revenue of $77.85 billion, earnings per share of $2.58 and profit of $21.86 billion.
During the earnings conference call, which will be webcast starting at 2:30 p.m., CEO Satya Nadella and CFO Amy Hood are expected to talk about the company’s restructuring, following its acquisition of Nokia’s phone business, last week’s announcement of 18,000 layoffs for the coming year, and tighter restrictions starting this month on the use of vendors and temps.
Here’s how the various groups within each of Microsoft’s two broad segments performed in the fourth quarter, according to Microsoft’s news release:
Devices & Consumer:
Overall, this segment reported revenue of $10 billion, up 42 percent.
• Licensing (Licenses from Windows device manufacturers, consumer Windows, Windows Phone, Office consumer, and patents): $4.69 billion, up 9 percent.
Licensing revenue from Windows device manufacturers grew 3 percent.
The increase in revenue is also due to recognition of $382 million from the conclusion of the commercial agreement with Nokia.
The increases were offset by a decline in royalty revenue.
• Computing & Gaming Hardware (Surface, Xbox and Xbox Live subscriptions, second- and third-party video games, and peripherals. This category was previously called “Hardware.”): $1.44 billion revenue, up 23 percent.
Surface revenue was $409 million. Interestingly, Microsoft noted that the cost of revenue included inventory adjustments not just due to new generation devices (such as Surface Pro 3 going on the market) but also “a decision to not ship a new form factor” — likely the much-rumored-about Surface Mini.)
Xbox platform revenue increased $104 million, or 14 percent, driven largely by console revenue. The company sold 1.1 million consoles to retailers.
• Phone Hardware (Windows Phone. This is a new category this quarter, established since the closing of the Nokia acquisition in April.): $1.99 billion.
The cost of the $1.99 billion revenue, though, was $1.93 billion, which includes amortization and the “impact of decisions to rationalize our device portfolio.
Following Microsoft’s acquisition of Nokia’s phone business, Microsoft sold 5.8 million Lumia smartphones and 30.3 million non-Lumia phones. Lower-priced phones drove a majority of the Lumia sales.
• Other (Bing and MSN, Office 365 Home and Office 365 Personal, first-party video games, marketplaces such as Windows Store, Windows Phone Store and Xbox Live transactions, as well as Microsoft retail stores): $1.88 billion, up 20 percent.
Bing search advertising revenue went up 40 percent, due mainly to higher revenue per search, increased search volume, and the end of the North American revenue-per-search guarantee payment sot Yahoo in the previous year. The increase was offset by an 11 percent decline in display ad revenue.
Office 365 Home and Office 365 Personal revenue increased $125 million, or 21 percent. There were 5.6 million subscribers, a gain of 1 million subscribers from the previous quarter.
Overall, this segment reported revenue of $13.48 billion, up 11 percent.
• Licensing: (Windows enterprise, Windows Server, SQL Server, Visual Studio, System Center, Office for businesses, Dynamics, Skype, Lync, SharePoint, Exchange, Windows Embedded): $11.22 billion, up 6 percent.
Windows volume licensing revenue increased 11 percent.
Revenue for server products grew $577 million, or 14 percent, driven largely by double-digit growth in SQL Server, System Center and Windows Server premium version.
Office commercial revenue, including Office 365, grew 4 percent.
• Other (enterprise services, cloud services, including Office 365 for businesses, Azure, Dynamics CRM Online): $2.26 billion revenue, up 44 percent.
Commercial cloud revenue grew 147 percent, due largely to triple-digit growth in commercial Office 365 and Azure. At the current subscriber rate, the commercial cloud businesses is expected to exceed $4.4 billion in revenue by the end of fiscal year 2015.
Microsoft shares closed flat today at $44.83 and were trading at around that price after-hours.
[The fuller story, running in the print edition of The Seattle Times July 23, 2014, is here.]