Microsoft revenue drops due to “restructuring”

Microsoft’s year-on-year net income has dropped by around $695m due to “integration and restructuring” plans, according to the firm’s fiscal statement

Microsoft has seen a drop of around $695m in year-on-year net income due to “integration and restructuring” plans, according to the firm’s fiscal statement.

The IT giant's financial report for the second quarter of 2015 reported $5.8bn net income, with $243m spent on ongoing restructuring of the company. This included expenses involving “employee severance”, “consolidation of facilities and manufacturing operations”, and the ongoing acquisition of Nokia’s devices arm.

Commercially, Microsoft’s focus on cloud saw a 114% revenue growth driven by Office 365, Azure and Dynamics CRM Online.

During the firm's second-quarter conference call, Microsoft CEO Satya Nadella said there was continued customer and revenue growth across a growing footprint of cloud services.

“In fact, this quarter is the sixth consecutive quarter of triple-digit revenue growth in commercial cloud, and we're now at a run rate of $5.5bn," he said.

"Azure services continue to grow in appeal to enterprise IT and developers, with rapid improvements across hybrid services, premium cloud storage and virtual machine offerings, as well as enhanced data and data analytics offerings.”

But commercial Office products saw a decline of 1% due to uptake of Office 365 and the decline of PC sales following the initial increase when support for XP ended.  

“We also saw some challenges this quarter. As expected, the one-time benefit of Windows XP end-of-life PC refresh cycle has now tailed off,” said Nadella.

In the spring of 2014, Microsoft decided to introduce Windows pricing programmes to target specific segments and drive growth of PCs and tablets, leading to Windows OEM Pro revenue declining by 13% due to lower-priced licences for academics.

Microsoft chief financial officer Amy Hood said the firm lowered the price of Windows Pro for academic customers to drive revenue growth in academic institutions. 

“This pricing change, along with the impact of XP, caused Windows revenue growth to be lower than the relatively stable business PC market we had seen at the end of the 2013 financial year,” she said. 

Windows 10 launch

The recent announcement of Microsoft’s Windows 10 operating system included plans for application programming interfaces and immersive 3D capabilities. According to Nadella, it also promises to be an operating system capable of spanning “the gamut from no screens to small screens, to PCs and even large screens”.

As we continue to work towards the launch of Windows 10, we will share additional detailed information regarding any accounting impacts from the Windows 10 free upgrade offer

Satya Nadella, Microsoft

“As we continue to work towards the launch of Windows 10, we will share additional detailed information regarding any accounting impacts from the Windows 10 free upgrade offer and Windows as a service,” he said.

PC sales reached 83.7 million in the final quarter of 2014, displaying continued improvement in the sector, according to analyst Gartner.

But PCs have not won the war, as smartphone uptake dominates emerging markets and leave no room for desktops in these regions.

The commercial devices side of the market is also growing, and Microsoft saw a 24% increase in revenue for Windows Surface tablets in the second quarter of 2015, driven by sales of the Surface Pro 3 tablet.

According to Microsoft’s earnings release, its Surface range made $1.1bn worth of revenue for the firm and sales of consumer devices grew by 8% year-on-year to $12.9bn.

Sales of Microsoft's Lumia smartphone also went up due to demand for affordable smartphone handsets in emerging markets.

Nadella said: “The sales for Lumia phones top 10 million units, growing 30% year-over-year this quarter with strength in devices such as Lumia 500 and 600 series – our affordable smartphone. 

"In this segment of the market, the combination of our brand and value stand out, and we plan to continue to build a beachhead here.”

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