Microsoft bags more CASH – but profit's flat as Nadella waves axe

Earnings for Q4 narrowly miss estimates after Nokia gobble

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Microsoft posted solid yet unspectacular results for both the fourth quarter of its fiscal 2014 and the full fiscal year, even as investors braced for new CEO Satya Nadella to axe as many as 18,000 staffers.

Revenues for the quarter beat analysts' estimates slightly at $23.38bn, a 17.5 per cent gain over the same period a year ago. That brought revenues for the full year to $86.83bn, an 11.5 per cent increase over fiscal 2013.

Net income for Q4, on the other hand, was down 7.1 per cent, year-on-year, to $4.61bn. And net income for the full fiscal year was flat, at $22.07bn.

Those lackluster profits were reflected in the software giant's earnings, which disappointed at just $0.55 per diluted share. The Wall Street fortune-tellers were hoping to see something closer to $0.60 per share, on average.

This was the first quarter in which Redmond reported numbers from its new phone hardware division, having completed its acquisition of Nokia's Devices and Services business in April. As part of that deal, Nadella announced changes to Microsoft's reporting structure last week that offer slightly more transparency into Microsoft's Devices and Consumer division than was available when former CEO Ballmer announced the revised structure last September.

For starters, Redmond will henceforth report its Phone Hardware revenue as a separate line item. It pulled down $1.99bn in revenue from the segment in the fourth quarter – which, not coincidentally, is the same amount it brought in for the full fiscal year.

Computer and Gaming Hardware, on the other hand – another new reporting segment – brought in revenues of $1.44bn, a 23.5 per cent increase from the year-ago quarter. And compared to fiscal 2013, the division's revenues were up an impressive 49.0 per cent, to $9.63bn.

Devices and Consumer Licensing, the segment that covers sales of Windows and Office to consumers, among other items, saw quarterly revenues of $4.69bn, a 9.5 per cent year-on-year increase. But full-year revenues for this segment dipped ever so slightly to $18.80bn, a 1.1 per cent drop.

The Devices and Consumer Other segment, which lumps in everything from app store sales to retail to consumer Office 365 subscriptions, brought in $1.88bn in revenues, a 20.3 per cent hike over the year-ago period. The segment's revenues for the full year were likewise up 9.7 per cent over 2013, at $7.26bn.

Moving on to Microsoft's business customer segments, Commercial Licensing remained the company's biggest line item, but growth here wasn't as strong as could be hoped. Quarterly revenues for the segment were $11.22bn, a modest 5.6 per cent gain over last year's Q4. And revenues for the full year were likewise up just 5.7 per cent, at $42.03bn.

The Commercial Other segment, on the other hand, showed impressive growth. Fourth-quarter revenues for the segment – which includes Bing, Azure, and other business-oriented cloud services – only amounted to $2.26bn, but that was 43.7 per cent more than it brought in during the same period last year. Revenues for the full year were up 33.3 per cent, to $7.55bn.

That's a lot for Redmond-watchers to digest, and investors seemed ambivalent toward Microsoft's results ahead of a conference call with financial analysts on Tuesday, during which Nadella is expected to give further details of his restructuring plan. Microsoft's share price hadn't budged as of the closing bell on Tuesday, but you can bet that will change once Nadella speaks his mind. ®


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