Microsoft’s profit dips less than expected

Tech firm completes its $7.5 billion acquisition of Nokia’s handset business this week

The Nokia Oyj Lumia 1520, left, and Nokia Lumia Icon smartphones  at the Microsoft Developers Build Conference in San Francisco. Photo: Bloomberg

The Nokia Oyj Lumia 1520, left, and Nokia Lumia Icon smartphones at the Microsoft Developers Build Conference in San Francisco. Photo: Bloomberg

Fri, Apr 25, 2014, 07:17

Microsoft on Thursday again demonstrated its gift for weathering the turmoil in the personal computer industry, turning in solid financial results for a company playing catch-up in several important markets. Net income in the fiscal third quarter was $5.66 billion, or 68 cents a share. Revenue was nearly unchanged at $20.40 billion, compared with $20.49 billion a year ago.

But the attention of investors recently seems to be less on how much money Microsoft is making and more on a series of bold bets to reshape the company. The latest of those bets is set to take a critical step forward Friday when Microsoft completes its $7.5 billion acquisition of Nokia’s handset business.

The deal is by far the riskiest in Microsoft’s 39-year history, turning hardware - formerly a side business at Microsoft - into a far more integral part of the company. Overnight, the acquisition will expand the company’s workforce by nearly a third, as 30,000 Nokia employees will fall under Microsoft’s sphere, creating giant logistical challenges.

Microsoft said its net income for the three months that ended March 31 - the company’s fiscal third quarter - was $5.66 billion, or 68 cents a share, compared with net income of $6.06 billion, or 72 cents a share, in the same period a year earlier.

The declines were partly the result of a $1.66 billion in deferred revenue the company had in the same quarter last year, which was related to one-time promotional offers it extended to customers who bought new versions of Windows, Office and other products. When that money is not included, Microsoft’s revenue grew 8 per cent and its earnings grew 5 per cent.

Microsoft’s results were better than Wall Street was expecting. Microsoft’s shares rose more than 2 per cent in after-hours trading after the release of its results. The financial report showed that some recent initiatives are growing quickly. The company said revenue from its Azure cloud computing business rose 150 per cent. Revenue from its Surface tablet computer rose 50 per cent, to $500 million.

“Microsoft and Nadella continue to have massive challenges ahead around Nokia, the tablet and diversifying Microsoft outside the PC environment,” said Daniel H. Ives, an analyst at FBR Capital Markets, speaking of Satya Nadella, Microsoft’s new chief executive.

“With that said, I would view this as a step in the right direction. I think I would characterize the Nadella era as off to a good start.”

Mr Nadella, who took over in February, has sought to set a new tone for the company. He continued that on Thursday, speaking on a conference call with financial analysts, something his predecessor, Steven Ballmer, did only rarely, and had not done at all for years. Mr Nadella said the company viewed itself as an underdog in the new markets it is entering.

NYT