Microsoft profit drops but devices, consumer products help results

The company suffers in comparison to the same period last year, but sales of tablets and Windows help it beat expectations

By , IDG News Service |  Software

Microsoft's profit dropped and its revenue was almost flat in its third fiscal quarter, during which the company replaced Steve Ballmer with Satya Nadella as CEO.

Revenue came in at $20.40 billion, down slightly from $20.49 billion in the same quarter last year. Net income was $5.7 billion, or $0.68 per share, down from $6.1 billion, or $0.72 per share.

However, Microsoft's revenue matched the forecast of analysts polled by Thomson Reuters and exceeded their earnings-per-share estimate by $0.05. Sales growth for tablets and Windows helped Microsoft's results.

On a pro forma basis, which excludes certain one-time items, revenue increased 8% and earnings per share rose 5%.

"I sum up this quarter in two words: execution and transition," Nadella said on a conference call to discuss the results. "We delivered solid financial results and we took several steps to reorient Microsoft."

Nadella was appointed CEO in early February, before the quarter was halfway through, and sounded upbeat on his first earnings call since taking over.

He said the results reflect Microsoft's strengths and opportunities in a "mobile-first, cloud-first world," a phrase he has used constantly since becoming CEO.

Keeping the staff and products focused on that idea is one of his priorities, he said on Thursday.

Asked on the call if any significant strategy changes are in the works, Nadella didn't mention any particular area but said his philosophy is to have the company on a continuous cycle of planning and execution, and to revise plans as frequently as needed based on the market.

"We've picked up the pace on asking the hard questions," he said.

Nadella said he was particularly satisfied with the adoption of Microsoft cloud services, which he considers key for the company's long-term outlook.

He cited recent moves to boost the Office and Windows franchises, such as the launch of Office for the iPad, the update to Windows 8.1, the upcoming Windows Phone 8.1 upgrade and the decision to license Windows for free to hardware vendors making smartphones and tablets with screens smaller than 9 inches.

The shift from PCs to mobile creates opportunities for Windows and Office, according to Nadella, but requires a different approach to licensing, pricing and technology.

"We are committed to ensuring that our cloud services are available across all device platforms that people use. We are delivering a cloud for everyone on every device," he said.

The Devices and Consumer division's revenue grew by 12% to $8.30 billion, while gross margin fell 1% to $4.71 billion. Some highlights were a 4% revenue increase in Windows OS sales to hardware vendors, and a 50% increase in Surface tablet revenue, to $500 million.

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