Microsoft Corporation Earnings Both Lifted And Pulled Down By Nokia

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Microsoft Corporation (NASDAQ:MSFT) acquired the handset division of Nokia Corporation (ADR) (NYSE:NOK), last year, for over $7 billion, and still there have been debates over efficacy of the decision. The acquisition was completed last quarter, and still it is not clear whether the acquisition move was right or wrong as the division boosted Microsoft’s revenue, but ate away some of its profits, in the last quarter.

 Microsoft CEO content with Lumia sales

For the quarter ending June 30, revenue for Microsoft was up by 18% year over year to $23.4 billion. The numbers beat the consensus analyst forecast of $23 billion with the help of the additional $2 billion contribution from Nokia, says a report from PC World.

Though Nokia contributed to the revenues, it took away around $0.08 a share from the profits of Microsoft, eventually leading it to miss the consensus estimate of $0.60 a share by a nickel. On a year over year basis, the earnings per share were down 7%.

However, CEO Satya Nadella appear satisfied with the sales numbers of lower-priced Lumia and non-Lumia phones, but expects the higher-end Lumia to perform better once the software giant complements it with its productivity apps and services. In the reported quarter, Microsoft sold 5.8 million Lumia smartphones and 30.3 million non-Lumia, lower-end feature phones.

Nokia under Nadella

According to CFO Amy Hood, the handset business, now a part of the Devices & Consumer Division is expected to break-even by fiscal year 2016.

For the two months that the handset business was the part of Microsoft, it reported operating expenses of about $750 million. On an annual basis, the expenses would have been around $4.5 billion, according to Hood.

“But we are aggressively working to drive synergies across key functions such as development, supply chain and operations as we integrate and right-size the business,” she said.

Microsoft, which was more of a “devices and services” company under Steve Ballmer, has moved towards “platform and productivity” under Nadella.

Nadella made his strategy clear that the company will develop its own hardware only when it has something substantial to work on like Surface Pro 3. Microsoft will “responsibly” create a market for Windows phone, and the “first-party device portfolio will be aligned to our strategic direction as a productivity and platform company,” Nadella said.

Such comments do reflect the notion that the CEO is not very bullish on Nokia, as was seen initially, when Microsoft was making attempts to follow Apple, mastering both software and hardware.

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