Microsoft’s FQ4 Beats Expectations, Investors Send Stock Lower On Phone Losses

Following the bell, Microsoft reported its fiscal fourth quarter financial performance, including revenue of $22.2 billion, and adjusted earnings per share of $0.62.

The company took a stiff charge in the quarter relating to its writedown of hardware assets that it purchased from Nokia. Using normal accounting methods, Microsoft had operating income of negative $2.1 billion in the quarter. Analysts had expected Microsoft to report $0.56 in per-share, adjusted profit, on revenue of $22.06 billion.

The company’s revenue fell from 5 percent a year-ago tally of $23.382 billion, due in large part to a slipping phone-related top line. In total, using normal accounting techniques, Microsoft lost $3.2 billion in quarter, or $0.40 per share. In contrast, the company had regular profit of $4.6 billion in the year-ago quarter.

The company closed its fiscal year with more than $96 billion in cash and equivalents.

In regular trading, Microsoft rose a fraction in a generally bearish market. Following its earnings beat, the software company is down just over three percent in after-hours trading.

Sectional Performance

Microsoft reported that its incomes from selling Windows to OEMs fell 22 percent compared to the year-ago period. That figure is artificially depressed on a ratio basis, given that this time last year saw the death of Windows XP, which drove a spate of Of course, with Windows 10 just days out, Microsoft could be suffering from modest wait-until-new-stuff-is-out syndrome on the demand side of things.

The company picked up 2.8 million new consumer Office 365 subscribers, ending the quarter with 15.2 million. In the sequentially preceding period, Microsoft had 12.4 million consumers subscribers to Office 365, a product that is a slurry of services and apps that replace the company’s traditional software model.

Key to Microsoft’s future performance are cloud revenues derived from corporations. According to Microsoft, its ‘commercial cloud’ revenue run rate on an annual basis is now over $8 billion. In the two sequentially preceding quarters, that figure was $6.3 billion, and $5.5 billion, respectively. According to the firm, its commercial cloud revenue has grown 88 percent compared to the year-ago period.

The company expects the commercial cloud portion of its revenue to grow to a $20 billion revenue run rate inside the next two years.

It’s not hard to see why Microsoft had to write down its phone assets: Revenue from phone hardware fell from $1.98 billion in the year-ago quarter, to a far slimmer $1.234 billion in its most recent quarter. The company sold 8.4 million Lumia phones, up from its year-ago score of 5.8 million. Its dumbphone business saw its volume fall sharply.

Finally, Surface. During the quarter, Surface brought in $888 million of revenue. In the sequentially preceding quarter, Surface totted up $713 million in sales. The quarter’s figure is up 117 percent compared to the year-ago period.


Microsoft demonstrated very similar trends in the current quarter to other recent fiscal periods. The company’s stiff writedown, failure to turn a GAAP profit, and falling phone revenues are mostly balanced by its growth in both the consumer and corporate cloud sectors.

However, investors do not appear to be overly enthused with a quarter that mostly met expectations. That fact doesn’t disappear the massive, smoking crater that the Phone group caused, but it does assuage the pain perhaps slightly.

Don’t forget: Non-cash impairment predicated on a prior cash expense is still a real loss.