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Microsoft Posts Loss in Q4 After Nokia Write-Down

Microsoft on Tuesday reported a loss for its fiscal fourth quarter that was largely due to the huge write-down the company took on the value of its Nokia acquisition, although declining Windows revenues also played a part.

The loss amounted to $0.40 per share on revenues of $22.2 billion, which represented a 5% drop in sales compared to the year-ago quarter.

The Nokia write-down and 7,800 related layoffs were announced on July 8, and analysts polled by Thompson Reuters had expected the charge to result in a smaller loss for the quarter of $0.30 per share. Excluding the write-down and restructuring, the average expectation was for earnings per share of $0.56. The analysts had also expected revenues to fall by about 6%.

Microsoft outpaced expectations on revenues and earnings per share exclusive of the write-down, hitting $0.62 per share. However, the charges related to the Nokia Devices and Services (NDS) business and restructuring ended up being larger than Microsoft indicated earlier in the month. All together, the impairment and restructuring charges amounted to $8.4 billion or $1.02 per share.

The quarter that ended June 30 also marked the end of Microsoft's fiscal year. For the full year, Microsoft had revenues of $93.6 billion, an 8% gain, and earnings per share of $1.48, a 44% decline.

"We finished the fiscal year with solid progress against our strategic priorities, through strong execution and financial discipline, which is reflected in our results for the quarter and the year," said Amy Hood, executive vice president and chief financial officer at Microsoft, in a statement.

CEO Satya Nadella focused on the positives in a statement. "Our approach to investing in areas where we have differentiation and opportunity is paying off with Surface, Xbox, Bing, Office 365, Azure and Dynamics CRM Online all growing by at least double-digits," Nadella said. "And the upcoming release of Windows 10 will create new opportunities for Microsoft and our ecosystem."

Devices and Consumer revenues fell by 13%, and Windows OEM revenue fell 22%, a result Microsoft attributed to the decline of the PC market and the fact that the comparable quarter last year benefited from the Windows XP refresh boom.

On the plus side, Surface revenues jumped 117% to $888 million on the strength of Surface Pro 3 and the launch of the Surface 3. Xbox revenues were up 27%, search advertising revenue was up 21% and commercial cloud revenue was up 88%.

COO Kevin Turner reiterated some of the themes of the recently concluded Microsoft Worldwide Partner Conference in a statement that gave the Microsoft channel an unusual piece of the spotlight for an earnings release.

"In our commercial business we continue to transform the product mix to annuity cloud solutions and now have 75,000 partners transacting in our cloud," Turner said. "We are also expanding the opportunity for more partners to sell Surface, and in the coming months will go from over 150 to more than 4,500 resellers globally."

In an earnings webcast, Nadella said, "Above all else, I'm optimistic about our future."

One source of that optimism is the planned release of Windows 10 later this month. "While the PC ecosystem has been under pressure recently, I do believe that Windows 10 will broaden our ecosystem opportunity and return Windows to growth," Nadella said.

Citing ecosystem activity that includes thousands of devices and configurations in testing for upgrades and hundreds of new designs in the works, Nadella predicted, "By this holiday, we will be selling the widest range of Windows hardware ever available."

As for Microsoft's own hardware, Nadella noted that Surface revenue for the year hit $3.6 billion. "Surface is clearly a product where we have gotten the formula right," Nadella said, adding that it would provide a template for Microsoft's future efforts in first-party hardware.

In the cloud, Nadella said Microsoft's commercial annual revenue runrate surpassed $8 billion in FY 15 and said the company was on a strong trajectory to hit its goal of $20 billion in cloud revenue in fiscal 2018.

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About the Author

Scott Bekker is editor in chief of Redmond Channel Partner magazine.