Microsoft endures profit stealing Nokia write-down for Q4 2015

Microsoft’s a company in flux and its fourth quarter earnings are proving just as much. With a confluence of a strengthening U.S. dollar, loss licensing revenue on Windows 10 upgrade giveaway, and the $7.5 billion dollar impairment charge resulting from the Nokia write-down, Microsoft’s quarter results had investors wincing during the reveal.
Earlier today Microsoft announced its financial results for the company’s Q4 FY2015. Microsoft posted $22.2 billion in revenue with gross margins at $14.7 billion for the quarter. However, due to the Nokia write-down, Microsoft had to report a $2.1 billion dollar operating loss.

Specifically, the Nokia write-down resulted in a restructuring charge of $780 million dollars, as well as a charge of $160 million dollars related to last year’s integration and restructuring announcements. Those two charges were applied in addition to the $7.5 billion noncash impairment charge, totaling $8.4 billion dollars worth of negative impact against the company or a negative $1.02 per share for investors.
The Nokia write-down wasn’t the only factor weighing against Microsoft’s quarterly results. As the U.S. dollar continues to strengthen against foreign currency, the impact on Microsoft was significant.
Microsoft’s Q4 FY2015 news taken separately from the now proven Nokia debacle; operating income would have been $6.4 billion and a return to investors at $0.62 a share. The total return for shareholders this quarter sat at $6.7 billion in the form of dividends and repurchases.

While Wall Street was expecting earnings of $0.56 share on revenue of $22.06 billion without the Nokia intereference, Microsoft would have returned $0.62 a share on revenue of $22.18 billion. Plainly put, Nokia sacked Microsoft this quarter. However, for fiscal 2015, Microsoft reported an eight percent increase in the revenue from a year ago. Microsoft’s reported earnings for the year come in at $18.2 billion and $1.48 a share on revenue of $93.6 billion.

As for the breakdown, Microsoft was quick to highlight:

“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.”

Areas of growth and opportunity look to come from the cloud and commercial interest from the company, which is up 4% reaching $13.5 billion in revenue.

  • 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 decreased 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.”

Now that the Nokia band aid has been ripped off, Microsoft’s earnings should return to more recognizable numbers in the near future.

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