BackMicrosoft revenue tops estimates as CEO Nadella advances revamp plan
Total revenue in the first fiscal quarter, ended 30 September, rose 25% to $23.2 billion
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Seattle:Microsoft Corp.’s quarterly sales topped estimates on cloud-computing growth and recovering personal-computer sales, as chief executive officer (CEO) Satya Nadella shows progress in his effort to revive the company.
Revenue at the ailing Nokia Oyj handset business, which Microsoft acquired earlier this year, also topped projections, while sales of Azure cloud software and Web-based versions of Office programs more than doubled. Total revenue in the first fiscal quarter, which ended 30 September, rose 25% to $23.2 billion, compared with analysts’ average estimate for $22 billion, according to data compiled by Bloomberg.
The results bolster Nadella’s view that the world’s largest software maker needs to focus on Web-based services and mobile devices. After taking over in February, Nadella unveiled plans to cut 18,000 positions, the biggest-ever job cuts in the company’s history. By under-promising and over-delivering, he’s keeping up a “positive momentum" with investors, according to Daniel Ives, an analyst at FBR Capital Markets and Co.
“This quarter was another step in the right direction for Microsoft," said Ives, who has the equivalent of a buy rating on Microsoft’s stock. “Cloud continues to put fuel in the engine for Microsoft as Nadella looks to steer this company towards its next chapter of growth."
Another bright spot was Surface, Microsoft’s tablet computer that was introduced two years ago, only to struggle to gain market share. Revenue from the devices rose to $908 million as the Surface Pro 3 outsells the previous version by a 2-to-1 margin, the company said.
Cost cuts
The shares of Redmond, Washington-based Microsoft rose as much as 4.6% in extended trading. The stock advanced 1.4% to $45.02 at Thursday’s close in New York, leaving it up 20% this year.
Including charges related to the job cuts, which began in July, the company reported first-quarter net income of $4.54 billion, or 54 cents a share. Nadella is cutting costs after Microsoft completed its €5.44 billion ($7.33 billion) acquisition of Nokia’s mobile-phone operations, and is seeking to streamline operations elsewhere.
Profit in the period ended 30 September, excluding restructuring charges, was 65 cents a share, the company said in a statement on Thursday, topping the average projection for 55 cents. Microsoft fired 2,100 workers in September and 13,000 in July, part of the total that will be cut.
“Microsoft is very much in the middle of a transition and are dealing with some profound changes in technology and business model," said Frank Gillett, an analyst at Forrester Research Inc.
Phone business
The unit that includes the Nokia business posted sales of $2.61 billion, beating the $2.1 billion average estimate of analysts, according to data compiled by Bloomberg. The number was also ahead of Microsoft’s internal forecast, according to Chief Financial Officer Amy Hood.
“We have work to do on phones but we are seeing Lumia share growth in key markets," Hood said. “That being said, we know this is a long road."
Microsoft will drop the Nokia name from phones and instead brand them Lumia, a change the company signaled when it announced the acquisition.
For the current quarter, Hood forecast phone hardware revenue of as much as $2.2 billion.
PC market
Microsoft is benefiting from an upgrade cycle in the PC market, as companies replace aging machines. Intel Corp., the biggest chipmaker, last week forecast higher-than-projected sales as companies replace aging PCs that were running Windows XP software, an operating system that Microsoft no longer supports. Worldwide PC shipments fell 1.7% in the period ending in September, IDC said this month, a smaller decline than the 4.1% drop that the researcher had predicted.
Hood said Microsoft didn’t see much of a bump from replacements of PCs running Windows XP, which the company no longer supports. Instead, there’s a return to regular upgrades by corporations, she said. Consumer PC demand also seems to be improving in developed economies ahead of the holiday shopping season, Hood said.
“On the consumer side, we see reasonably healthy inventory levels from PC makers, which reflects an optimistic view of the holiday," the CFO said.
Unearned revenue, which comes from sales of multi year deals that will be recognized in the future, was $22.5 billion for the fiscal first quarter, compared with the $22.6 billion average analyst projection, according to data compiled by Bloomberg.
Cloud performance
Other commercial revenue, which includes Azure and the Office 365 Internet-based applications, rose 50% to $2.41 billion, compared with a $2.3 billion analyst estimate. Of that, Microsoft said sales for its commercial-cloud products rose 128%.
“How many vendors of that size are growing that fast?" said Mark Moerdler, an analyst at Sanford C. Bernstein and Co. in New York, who describes his rating on Microsoft’s stock as “pound-the-table outperform," or the equivalent of a buy.
Total revenue in that category will climb to $2.6 billion in the current quarter, Microsoft said.
The guidance is “a bit more conservative than some of the bulls had been hoping," FBR’s Ives said.
While the results show progress in mobile and cloud, there’s a ways to go, Forrester’s Gillett said.
“These numbers aren’t going to transform their role in mobile and cloud but it keeps them in the game," Gillett said. Bloomberg
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