$7.5 Billion Nokia Write-Down Slashes Microsoft's Q4 Earnings

By Pedro Hernandez  |  Posted 2015-07-21 Print this article Print
Microsoft Earnings Hit

Microsoft ends its 2015 fiscal year stung by the massive Nokia write-off and declining PC sales. Cloud remains a bright spot, however.

Microsoft reported a fourth quarter operating loss of $2.1 billion or 40 cents per share on July 21 due to the $7.5 billion write-down related to the acquisition of Nokia's Devices and Services businesses, as well as a charge of $160 million related to the company's restructuring efforts.

It also reported that revenues had dipped 5 percent to $22.2 billion during its 2015 fourth quarter compared to the same year ago period.

Besides announcing the write-down of its Nokia Devices and Services acquisition on July 7, Microsoft announced it was cutting 7,800 positions, mostly from its embattled mobile phone business.

Without those charges, operating income would have totaled $6.4 billion equal to per share earnings of 62 cents, beating Wall Street expectations. Financial analysts had expected earnings per share of 55 cents on sales of $22 billion.

In prepared statements, top executives focused on the positives. "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, CEO of Microsoft.

Nadella also sounded an optimistic note regarding next week's high-profile launch of Windows 10. "The upcoming release of Windows 10 will create new opportunities for Microsoft and our ecosystem."

During the July 21 earnings conference call, Nadella countered rumors that the first Windows 10 PCs would miss next week's release date. He also pledged that during the holidays, vendors will be "selling the widest range of Windows hardware ever available."

Windows OEM revenue dipped 22 percent in Q4, year-over-year. Last year during the same period, Windows XP's support sunset helped at least slow the PC market's decline.

Microsoft's investments in the cloud continue to pay off. The company announced that commercial cloud revenue grew 88 percent in Q4. Driven by continued business adoption of its Azure-backed services like Office 365, Azure and Dynamics CRM Online, the company's commercial cloud business now boasts an annual run rate of more than $8 billion, a figure Nadella expects to hit $20 billion in the company's 2018 fiscal year, he said during the call.

Consumers are also snapping up Office 365 plans. Nearly 3 million new subscribers signed up during the quarter, for a total of 15.2 million. Sales of the company's Surface tablet models also increased by 117 percent, thanks to solid demand for the Surface Pro 3 and recent launch of the Surface 3.

"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," Kevin Turner, chief operating officer at Microsoft, said in a statement. "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 the entire 2015 fiscal year, Microsoft reported $93.5 billion in revenues, an 8 percent year-over-year increase, and earnings per share of $2.63. "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 Microsoft's CFO Amy Hood, in a statement.


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