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

Microsoft's revenue and net income for the past five financial quarters

Microsoft's revenue and net income for the past five financial quarters

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 $US20.40 billion, slightly down compared with revenue of $US20.49 billion in last year's third quarter. Net income was $US5.7 billion, or $US0.68 per share, down from net income of $US6.1 billion, or $US0.72 per share.

However, Microsoft matched the revenue consensus forecast from analysts polled by Thomson Financial, and exceeded the earnings-per-share expectation by $0.05. Sales growth for tablets and Windows OS helped Microsoft beat expectations.

On a pro forma basis, which excludes certain one-time items like revenue recognition for several offers and deferrals from last year's third quarter, revenue increased 8 percent and earnings per share rose 5 per cent.

"This quarter's results demonstrate the strength of our business, as well as the opportunities we see in a mobile-first, cloud-first world. We are making good progress in our consumer services like Bing and Office 365 Home, and our commercial customers continue to embrace our cloud solutions. Both position us well for long-term growth," Microsoft CEO Satya Nadella said in a statement.

Nadella was appointed to the CEO post in early February, before the halfway mark of the third quarter, which ended on March 31.

The Devices and Consumer division's revenue grew on a pro forma basis by 12 per cent to $US8.30 billion, while gross margin shrunk 1 per cent to $US4.71 billion. Some highlights were a 4 per cent revenue increase in Windows OS sales to hardware vendors, and a 50 per cent revenue increase in Surface tablet revenue to $US500 million.

Microsoft also highlighted that Office 365 Home, the subscription-based version of Office for consumers, ended the quarter with 4.4 million subscribers, almost 1 million more than in the previous quarter, and that Bing's search ad revenue went up 38 per cent.

Revenue for the traditional Office suite, sold via perpetual licenses, rose 15 per cent, thanks primarily to sales in Japan. Combined with Office 365 Home sales, revenue for those consumer-focused versions of Office increased 28 per cent.

The Commercial division's revenue rose on a pro forma basis by 7 per cent to $US12.23 billion, and gross margin rose 6 per cent to $US9.91 billion. The division's performance was helped by a more-than-100-per cent revenue increase from Office 365, the Cloud and subscription suite of server and desktop productivity applications for businesses, and by a 150 per cent hike in revenue from the Azure Cloud platform services.

Other highlights from the Commercial division include an 11 per cent revenue increase in Windows volume licensing for business customers and "double-digit" revenue growth for collaboration and communication server products Lync, SharePoint and Exchange, as well as for the SQL Server database.

Juan Carlos Perez covers enterprise communication/collaboration suites, operating systems, browsers and general technology breaking news for The IDG News Service. Follow Juan on Twitter at @JuanCPerezIDG.

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