Microsoft Posts Largest-Ever Net Loss After Nokia Writedown
Source: Dina Bass
Microsoft Corp. reported its largest-ever quarterly net loss, hurt by a $7.5 billion writedown after the purchase of Nokia's handset unit failed to rescue the company's mobile business.
The net loss in the fourth quarter, which ended June 30, amounted to $3.2 billion, and sales fell 5.1 percent to $22.2 billion, Microsoft said Tuesday in a statement. Excluding the Nokia charge and costs related to job cuts, profit was 62 cents a share. Analysts on average projected profit of 58 cents on sales of $22 billion, according to data compiled by Bloomberg.
While revenue from Microsoft's cloud-computing business rose on growth in the Azure and Office 365 programs, the gains were overshadowed by the writedown, an acknowledgment that the Nokia deal had lost almost all its value after a little more than a year. Chief Executive Officer Satya Nadella announced 7,800 job cuts and said he plans to narrow the focus of the mobile business to try to win customers in specific markets.
"Phones continue to struggle and it was pretty much in line in the cloud initiatives," said Dan Morgan, a senior portfolio manager at Synovus Securities Inc., which owns Microsoft shares. "They're still progressing but people would like them to move faster."
The strength of the U.S. dollar hurt revenue and earnings in the recent quarter, Microsoft said. Excluding the effect of currency fluctuations, revenue would have declined 2 percent.
Restructuring Charges
Microsoft shares fell 3.6 percent in extended trading following the report after closing at $47.28. The shares rose 8.6 percent in the quarter, while the Standard & Poor's 500 Index fell less than 1 percent.
Earnings were reduced by a total of $8.4 billion, including the writedown of its Nokia purchase and restructuring charges related to job cuts and other integration efforts. Including those costs, the net loss in the fourth quarter was 40 cents a share, the Redmond, Washington-based company said.
Microsoft acquired Nokia's phone unit in April 2014 for $9.5 billion, including $1.5 billion in acquired cash. The addition of the unit -- a deal struck under CEO Steve Ballmer, Nadella's predecessor -- was a flop, and Microsoft's smartphone business continued to lose money while gaining little ground with mobile users.
Nadella's Changes
Last month, Nadella unveiled the biggest management overhaul in his 18 months as CEO. Former Nokia CEO Stephen Elop is exiting as Microsoft's hardware chief as the company consolidates that business with its Windows division. Three other senior leaders, including Mark Penn, a former adviser of President Bill Clinton, are also leaving the company.
Microsoft is releasing a new version of its flagship operating system, called Windows 10, on July 29. Sales of Windows have suffered as the personal-computer market heads toward its fourth straight year of shrinking unit sales, and Microsoft has seen lackluster demand for phones and tablets that run on the platform. Worldwide PC shipments fell 9.5 percent in the June quarter, Gartner said.
Under Nadella, Microsoft has refocused on corporate software and tools. The company released new cloud products and services, including Azure data-center features and Office 365 productivity programs, and brought out versions of its mobile applications for Apple Inc. and Google Inc. operating systems.
Currency Impacts
Microsoft expects currency exchange rates to continue to affect revenue in the fiscal year that started July 1, Chief Financial Officer Amy Hood said in an interview. Currency will impact the company's commercial business even more in the first half of the year than it did in the fourth quarter, she said.
Changes to narrow the focus of the phone-hardware business will lower sales but should also reduce costs in the money- losing business, she said.
"You will see improving results on the bottom line," she said of the mobile business.
In the fourth quarter, commercial cloud revenue climbed 88 percent, Microsoft said. Sales in the unit that includes those cloud programs rose 36 percent to $3.08 billion, compared with a $3.09 billion average estimate of analysts.
Revenue in the Commercial Licensing division, which includes copies of Windows and Office sold to corporate customers, fell 7 percent to $10.5 billion. That matched analysts' average projection.
Sales of Windows to PC makers to pre-install on machines dropped 22 percent, the company said. In the year-earlier quarter, customers were buying PCs ahead of the expiration of support for Windows XP, the company said.
Device and Consumer Licensing sales, which include consumer versions of Windows, declined 34 percent to $3.23 billion. Analysts had expected $3.25 billion.
"Consumer demand continues to be weak," said Colin Gillis, an analyst at BGC Financial LP in New York. "Enterprise demand is continuing to crank along -- that's a bright spot."
Unearned revenue, a measure of future sales, was $25.3 billion, compared with the $26 billion average estimate of six analysts surveyed by Bloomberg.
| }
|