July 21, 2015 Last Updated 3:31 pm

Microsoft earnings takes hit from writedown of phone business

These earnings would be horrific if it were not mostly explained by Micorosft’s decision to writedown its phone business. But it is still is coming to a shock to some investors who just couldn’t foresee a day when the Redmond comoany would post a loss.

It happens, and those investors with three year old Toshiba’s better get used to it – it’s a new day. Now, it would be nice to see Microsoft’s PR and marketing team open up a bit. Otherwise, it will be another year of completely ignoring the company’s software and hardware when discussing digital publishing.

Here is part of the earnings statement:


REDMOND, Wash. — July 21, 2015 — Microsoft Corp. today announced that revenues for the quarter ended June 30, 2015 were $22.2 billion. Gross margin, operating loss, and loss per share for the quarter were $14.7 billion, $(2.1) billion, and $(0.40) per share, respectively.

These results include the impact of a $7.5 billion non-cash impairment charge related to assets associated with the acquisition of the Nokia Devices and Services (NDS) business, in addition to a restructuring charge of $780 million. There was also a charge of $160 million related to the previously announced integration and restructuring plan. Combined, these items totaled $8.4 billion or a $1.02 per share negative impact. Excluding this impact, operating income and EPS would have been $6.4 billion and $0.62, respectively.

During the quarter, Microsoft returned $6.7 billion to shareholders in the form of share repurchases and dividends.

The following table reconciles these financial results reported in accordance with generally accepted accounting principles (“GAAP”) to Non-GAAP financial results. Microsoft has provided this Non-GAAP financial information to aid investors in better understanding the company’s performance. All growth comparisons relate to the corresponding period in the last fiscal year.

The strengthening of the U.S. dollar compared to foreign currencies had a significant impact on results in the quarter. Excluding the effect of foreign exchange rate changes on the GAAP amounts, on a constant currency basis, revenue and gross margin would have declined 2% and 3%, and operating income and EPS would have declined 129% and 176%, respectively. Excluding the effect of foreign exchange rate changes on the Non-GAAP amounts, on a constant currency basis, revenue and gross margin would have declined 2% and 3%, respectively, and operating income and EPS would have declined 1% and increased 8%, respectively.

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“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,” said Satya Nadella, chief executive officer at Microsoft. “And the upcoming release of Windows 10 will create new opportunities for Microsoft and our ecosystem.”

“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.

Devices and Consumer revenue declined 13% (down 10% in constant currency) to $8.7 billion, with the following business highlights:

· Windows OEM revenue decreased 22% as revenue was impacted by PC market declines following the XP end-of-support refresh cycle
· Surface revenue grew 117% to $888 million, driven by Surface Pro 3 and launch of the Surface 3
· Total Xbox revenue grew 27% based on strong growth in consoles, Xbox Live transactions and first party games
· Search advertising revenue grew 21% with Bing U.S. market share at 20.3%, up 110 basis points over the prior year
· Office 365 Consumer subscribers increased to 15.2 million, with nearly 3 million subscribers added in the quarter

Commercial revenue increased slightly (up 4% in constant currency) to $13.5 billion, with the following business highlights:

· Commercial cloud revenue grew 88% (up 96% in constant currency) driven by Office 365, Azure and Dynamics CRM Online and is now on an annualized revenue run rate of over $8 billion
· Server products and services revenue grew 4% (up 9% in constant currency), with stable annuity performance offsetting declines in transactional revenue
· Dynamics revenue grew 6% (up 15% in constant currency), with the Dynamics CRM Online install base growing almost 2.5x
· Office Commercial products and services revenue declined 4% (up 1% in constant currency), with continued transition to Office 365 and lower transactional revenue due to declining business PCs following the XP end-of-support refresh cycle
· Windows volume licensing revenue declined 8% (down 4% in constant currency), driven primarily by transactional revenue declining following the XP end-of-support refresh cycle with annuity growth on a constant currency basis

“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,” said Kevin Turner, chief operating officer at Microsoft. “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.”

For Microsoft’s fiscal year 2015, the company’s revenue, gross margin, operating income, and diluted EPS were $93.6 billion, $60.5 billion, $18.2 billion, and $1.48 per share, respectively. Excluding the impact of impairment, integration and restructuring charges, full year operating income and EPS would have been $28.2 billion and $2.63, respectively.

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