Microsoft posted positive revenue in its first-quarter earnings report, easily beating Wall Street expectations. However, the software company's profits have taken a dip due to expenses tied with massive layoffs.
Microsoft chief financial officer Amy Hood says the company made a "strong start to the year" with a 25 percent increase in revenue to $23.20 billion compared to the $18.53 billion the Windows maker made last year.
Net income, however, took a 14 percent dip to $4.5 billion, or 54 cents per share, from last year's $5.24 billion, or 62 cents per share, due to charges amounting to $1.14 billion relating to Microsoft's acquisition of Nokia's phone business and restructuring efforts. More than 13,000 workers, mostly former Nokia staff, were laid off in July, while another 2,100 employees followed in September.
Still, the figures are better than Wall Street's prediction of 49 cents per share, including the charge.
"We delivered a strong start to the year, with continued cloud momentum and meaningful progress across our device business," says Hood.
The figures confirm Microsoft CEO Satya Nadella's big push into the cloud, which he continues to emphasize, is a core component of Microsoft's efforts to provide continuously improving productivity platforms for enterprises and business owners.
The company did not disclose exact numbers for its cloud business but says that revenue from its cloud services, including Office 365, Azure and Dynamics CRM more than doubled and rose by 128 percent. Consumer revenue for Office 365 took a dip by 5 percent but Microsoft continues to add more customers, with 7 million people now on board compared to 5.6 million last year. Azure, however, saw its gross profit margin grow by 194 percent, despite the increasing costs of building and operating data centers.
In a conference call with analysts, Nadella said Microsoft was the "only company with cloud revenue at our scale that is growing at triple digit rates."
"In light of recent negative earnings results from tech bellwethers Oracle, IBM, SAP, VMware and EMC, Microsoft is bucking the trend and we would label these September results as a solid accomplishment," says analyst Daniel Ives at FBR Capital Markets.
Microsoft's hardware business also proved to be a significant earner, despite fears that it might be falling behind its competitors. The Surface Pro 3, in particular, earns a bright spot for the company's earnings, more than doubling its revenue from last year's $400 million to $908 million this quarter. Sales of Microsoft's Lumia phones, which will take over the Nokia brand, peaked at $2.61 billion, well above the $2.1 billion analysts estimated for the division.
"The biggest challenge for Microsoft is turning around the Nokia and mobile business in the right direction as this remains an overhang on the name and a barrier to penetrating the golden goose of consumer spending," says Ives.
