Microsoft Sales Rise, Earnings Slip for FQ3 on Strong Cloud Business Sales

Written by DH Kass 1
April 23, 2015

Microsoft brushed off a fragile PC market and currency fluctuations to post a 6.5 percent increase in FQ3 sales to $21.7 billion but income for the period slid nearly 12 percent to $4.9 billion compared to the same time last year.

Microsoft (MSFT) brushed off a fragile PC market and currency fluctuations to post a 6.5 percent increase in FQ3 sales to $21.7 billion but income for the period slid nearly 12 percent to $4.9 billion compared to the same time last year.

Still, the vendor handily beat Wall Street’s sales expectations of $21.06 billion and, while earnings per share (EPS) slipped 11 percent to $0.61 from $0.68 a year ago, the results still were well ahead of analyst’s expectations of $0.51 a share.

Microsoft said its results for the period include a $190 million charge for the restructuring plan it announced in July, 2014 and the ongoing integration of Nokia’s (NOK) mobile business, which knocked $0.01 off the EPS results. Microsoft also said that the dollar’s strength prompted an additional 2.5 percent slide in sales and another 4 percent EPS dive.

In particular, Microsoft showed substantial growth in its cloud business as commercial cloud revenue grew 106 percent and now is on an annualized revenue run rate of $6.3 billion.

“Customers continue to choose Microsoft to transform their business and as a result we saw incredible growth across our cloud services this quarter,” said Satya Nadella, Microsoft chief executive.

Microsoft’s Windows OEM sales and volume licensing both were hit by the weak PC market. Windows OEM Pro revenue fell 19 percent to return to pre-Windows XP end-of-support levels and Windows OEM non-Pro sales fell 26 percent owing to the channel drawing down inventory. Windows volume licensing declined by 2 percent following the XP refresh cycle.

The company’s commercial revenue grew 5 percent to $12.8 billion with server products and services up 12 percent as premium versions of Windows Server, System Center Server and SQL Server as a group grew by 25 percent.

Microsoft’s overall consumer and devices business increased by 8 percent to $9 billion. Led by Surface Pro 3 sales, Surface revenue was up by 44 percent to $713 million. Microsoft sold 8.6 million Lumia handsets in the period amounting to some $1.4 billion in revenue.

The vendor closed the quarter with $95.4 billion in cash and short-term investments.