Microsoft Q1 sales jump, but Nokia drags down earnings

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Microsoft revenue leaped 25 percent in the first quarter but profit dropped, dragged down by expenses tied to its ongoing wave of layoffs and to the integration of Nokia’s phone business.

Revenue hit US$23.2 billion in the quarter ended Sept. 30, easily exceeding the $22 billion consensus expectation from analysts polled by Thomson Reuters.

Meanwhile, net income was $4.54 billion, or $0.54 per share. That exceeded analysts’ expectations by $0.05, but represented a drop of 13 percent in earnings per share compared with last year’s first quarter.

Profit was hurt by $1.14 billion of integration and restructuring expenses, which had a negative impact equivalent to $0.11 per share, resulting from the massive round of layoffs the company began to carry out in July and from the ongoing meshing of the Nokia Devices and Services business, whose $7.2 billion acquisition closed in April.

Microsoft CFO Amy Hood characterized the results in a statement as “a strong start to the year,” saying Microsoft benefitted from continued “momentum” in sales of its cloud computing products, and from “meaningful progress” across its devices businesses.

“We are innovating faster, engaging more deeply across the industry, and putting our customers at the center of everything we do, all of which positions Microsoft for future growth,” said Satya Nadella, Microsoft CEO.

Microsoft, which splits its business into two main segments, grew its Devices and Consumer revenue by 47 percent to almost $11 billion, while its Commercial group revenue rose 10 percent to $12.3 billion.

In the Devices and Consumer business, the company highlighted 25 percent sequential growth in subscribers for Office 365 Home and Personal from the fourth quarter, Surface Pro 3 sales of about $900 million and a 102 percent increase in Xbox console unit sales. Phone hardware revenue—the Nokia business—topped $2.6 billion.

In Commercial, Microsoft trumpeted that sales of its on premise server products, like SQL Server, System Center and Windows Server, grew 13 percent, while sales of cloud computing software and services, such as Office 365, Azure and Dynamics CRM, shot up 128 percent. Windows volume licensing grew 10 percent.

Microsoft announced in July its intention to lay off 18,000 employees, or about 14 percent of its workforce, the largest staff reduction in its history. The company has already cut about 15,100 positions in two layoff rounds. It’s not clear when it will eliminate the other 2,900 jobs, but the plan is to do so before the current fiscal year ends in June.

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