Microsoft posts record loss on Nokia write-down

Microsoft Corp.is scheduled to release earnings data on October 18.

Microsoft’s expectations-beating $22.2 billion in fourth quarter revenue wasn’t enough to keep the stock from falling 3.5% in after-hours trading Tuesday, as investors balked at the company’s $7.5 million Nokia writedown and a miss on commercial revenue.

Under Chief Executive Satya Nadella, the company has been shifting its focus to software and cloud services as demand for its once-popular Windows operating system slows.

Sales of Windows to PC makers to pre-install on machines dropped 22 per cent, the company said.

Microsoft is reportedly banking on Windows 10 (which releases July 29), to recover from Q42015 loss. In the year-earlier quarter, customers were buying PCs ahead of the expiration of support for Windows XP, the company said.

Commercial cloud revenue grew $832 million or 88 percent (up 96 percent 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, Microsoft reported in its earnings.

Office 365 consumer subscribers hit 15.2 million with 3 million added in the fourth quarter.

This move is quite applicable considering Microsoft’s more recent push with hardware such as the Surface tablets and its announcement of the HoloLens headset, which will presumably have access to a few universal apps, as well as its own bespoke ones. But for the year to June 30, 2014, the local business reported revenue of $86.6 million, a 10% increase from last year.

Yet excluding the impact of those charges – which comprised $7.5bn in impairment and another $780m in restructuring fees – Microsoft didn’t actually have that awful of a quarter, or a year.

Overall revenue fell 5 percent to $22.18 billion, slightly higher than the $21.98 billion expected by analysts surveyed by Zacks. How else do you make money when you sell your phone business, and your most famous brand is associated with sinking PC sales?

In addition, Microsoft said small and medium businesses offer “one of our best opportunities for new growth in the cloud”. “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”, Nadella said. Microsoft also saw a 27% increase in demand for Xbox consoles and the company reports it saw more Xbox Live transactions.

Unearned revenue, a measure of future sales, was US$25.3 billion, compared with the US$26 billion average estimate of six analysts surveyed by Bloomberg.