Microsoft sees end to Nokia losses, shares rise after hours

Tags: Companies
Microsoft Corp said it aims to get its loss-making Nokia phone unit to break even within two years, helping its stock rise in after-hours trade.

The world's largest software company reported a 7% dip in quarterly profit on Tuesday, chiefly due to incorporating the struggling handset business of the Finnish mobile pioneer.

Microsoft's chief financial officer said in a call with analysts that the company plans to take $1 billion in costs out of the Nokia operation and stop its losses by fiscal 2016 - which ends in June 2016 - following massive job cuts announced last week.

That cheered Wall Street, which was not expecting such decisive action.

"The expense guidance around Nokia was much better than feared," said Daniel Ives, an analyst at FBR Capital Markets. "While there is still some heavy lifting ahead, it appears brighter days are on the horizon for Microsoft after a decade of pain and frustration."

Microsoft shares hit new 14-year highs over the past week, and were up 1.1% at $45.33 after hours.

Nokia, which Microsoft bought in April for $7.2 billion in an attempt to take on Apple Inc and Samsung directly in the fast-growing smartphone market, added almost $2 billion to Microsoft's quarterly revenue, but posted an operating loss of $692 million, which included some one-time costs.

Nokia's Lumia smartphones, while well-reviewed, have not been as successful as Microsoft hoped, capturing no more than 4% of the global market. Lumia sales hit 5.8 million for the nine weeks of the quarter that Nokia was part of Microsoft. That compares with 35.2 million iPhone sales in the quarter.

Microsoft is in the process of drastically reducing Nokia's operation, closing some facilities and cutting about half of its 25,000 workforce, as it looks to rein in costs and refocus on cloud-computing under a plan launched by new Microsoft Chief Executive Satya Nadella last week.

"We will be relentless in our focus on our core, agile work and life experiences and the two platforms that support it, the cloud operating system and the device operating system and hardware," said Nadella on the call with analysts.

A slight recovery in the personal computer market, which was essentially flat over the past three months after two years of declines, helped sales of Microsoft's core Windows and Office products in the quarter.

Overall quarterly revenue rose 17% to $23.38 billion, above analysts' average estimate of $23 billion, although the bulk of that was due to the addition of sales from Nokia.

Microsoft reported fiscal fourth-quarter profit of $4.61 billion, or 55 cents per share, compared with $4.96 billion, or 59 cents per share, in the year-ago quarter.

Wall Street had expected 60 cents per share, on average, although it is not clear how analysts had factored in the performance and cost of integrating the Nokia operation.

EDITORIAL OF THE DAY

  • Finance minister has been pragmatic in exempting FIIs from MAT claims

    Good sense has finally prevailed in the government, with finance minister Arun Jaitley announcing the income-tax officials will exempt overseas funds

FC NEWSLETTER

Stay informed on our latest news!

INTERVIEWS

Sarthak Raychaudhuri

vice-president, HR, Asia South Whirlpool of India

GV Nageswara Rao

MD & CEO, IDBI Federal Life

Timothy Moe

Goldman Sachs

TODAY'S COLUMNS

Amita Sharma

Examining times for learning

The central advisory board of education in its meeting on ...

Zehra Naqvi

If you bend, you won’t break

There’s an ancient exercise about a green, supple new branch ...

Gautam Gupta

Bring on the Benares brigade

It was in 2003 when I first started work and ...

INTERVIEWS

William D. Green

Chairman & CEO, Accenture