Microsoft posts record quarterly loss after US$7.5b Nokia write off

Microsoft is planning to release the new Windows 10 next week and would have hoped for its consumer division to do better before launch.

“The growth of cloud brought a number of challenges to numerous established players in the industry who have had to rapidly adapt to new business models as a result”, said Linney. Following the $7.5bn writedown of its Nokia offshoot, the analysts were prepared to sink their teeth into the Redmond giant as its latest financial results came through. Microsoft’s Windows Phone has struggled to compete with Apple and Android devices in the smartphone space, and its September 2013 purchase of Nokia’s mobile phone business hasn’t had the desired effect.

Falling PC sales and desire for Windows licences hit the company hard, with software licences falling by 22pc.

Offsetting some of the decline was its booming cloud computing business and positive contributions from Xbox, Surface tablets and Bing search ads, which gained more than a percentage point for a USA market share of 20.3 per cent. Phone hardware sales were worse than expected.

In the quarter to 30 June 2015, Microsoft sold 8.4 million Lumia devices, which was an increase over last year’s full quarter sales, but as the mix has shifted to lower-cost devices, average selling prices have continued to decline. With the charges, Microsoft lost $3.2 billion, or 40 cents a share. The company also blamed declining royalty revenues. “We would expect the majority of that improvement in the second half of the year once the restructuring efforts are materially complete”. “And it applies to phones, it applies to Surface hardware, it applies to HoloLens, and that’s how I view it”. In that context, it might be hard to imagine a new Windows handset from Motorola, which Lenovo acquired previous year – but the company isn’t ruling it out completely. Nadella said that at least a few “premium” Lumia devices would be released this year, but Microsoft may have an even greater uphill battle convincing consumers to buy them now. Not unless they start to generate significant profits soon, some analysts say. “So that’s a place where we want to continue to focus”.

The lines on the chart are going up, then, but is Xbox doing well enough for Microsoft? The bloodletting is expected to mostly impact the company’s phone business, which has been adrift for some time. “That’s where you will see the most significant operational changes from how we operated last year to the coming year”. Terry Myerson, the Microsoft’s Executive Vice President of the windows and devices group gave his explanation.