Microsoft strategizes on operating segment-wise results

The American software company Microsoft has announced yesterday it is changing the way it reports on its financial results.

The first segment features Office and Office 365 results for commercial and consumer users, along with Dynamics and Dynamics CRM Online.

Intelligent Cloud will gather results from Microsoft’s server products including Windows Server, SQL, System Center, Azure and Enterprise Services.

This segment will be the place Microsoft will show revenue from its Windows business, along with its hardware devices like Surface and Lumia smartphones.

According to Satya Nadella, Chief Executive, Microsoft Corporation, the three new operating segments have been classified considering the interconnected and bold ambitions aimed at the company’s overall growth.

Brendan Barnacle with Pacific Crest, who has an Overweight rating on Microsoft shares, and a $55 price target, writes that “the new changes are likely to provide a better view of the company’s relative cloud businesses”, although “critics will point out that the new arrangement will hide any cannibalization of legacy businesses from the move to the cloud”.

Microsoft is due to report first quarter results on 22 October. The $7.5 billion non-cash impairment charge related to assets part of the acquisition of Nokia Devices and Services (NDS) business and another charge of $160mn pertaining to restructuring plan together put a lot of pressure on Microsoft’s financial performance.

Nevertheless, based on the numbers, it comes as no surprise that Microsoft’s Intelligent Cloud segment is a shining star, and will look to be for a few time to come. Bing, which is also technically a cloud service, is included in the More Personal Computing segment.

But Microsoft will not be able to disguise its bigger problems with the new format, Dawson said. The company’s strengths can be seen in multiple areas, such as its reasonable valuation levels, expanding profit margins, largely solid financial position with reasonable debt levels by most measures and notable return on equity.