By Shira Ovide
Microsoft Corp.'s charmed financial success hit a snag.
In Microsoft's quarterly earnings report Monday, the company's
shining star--its roster of software including Windows, Office and
computer-server products sold to corporations--came back to Earth
with sales that rose 5% from a year earlier. That was a bit below
analyst expectations, and lower than the 9.5% and 10.5% growth
rates for those businesses in the two prior quarters.
Amy Hood, Microsoft's Chief Financial Officer, said the
comparatively weaker showing was due in part to customers shifting
from traditional versions of the Office software bundle that are
installed on personal computers to Web-friendly Office 365 editions
that funnel less money into Microsoft's pockets, at least in the
short term.
In an interview Monday, Ms. Hood also said the strong U.S.
dollar compared with foreign currencies, particularly those of
China and Japan, weighed on revenue from Microsoft's
commercial-software products.
U.S. companies that sell products abroad in local currencies
must convert the revenue to U.S. dollars on their books. When the
dollar is strong relative to other currencies, as it is now, each
sale effectively is discounted. Several big U.S. companies have
taken a financial hit from these unexpected currency moves.
Shares of Microsoft, which have risen nearly 28% over the past
12 months, fell nearly 3% in recent after-hours trading.
Overall the company's earnings fell more than 10% during the
quarter ended in December on costs related to its streamlining
effort and its integration of the mobile phone business acquired
from Nokia last year.
The company's bottom line has been hit in recent quarters by
expenses related to job cuts started last summer and the Nokia
mobile phone business that it acquired in April. The July plans
included up to 18,000 jobs cuts, or about 14% of its workforce at
the time, largely to clear up overlap with the Nokia
businesses.
For the period ended Dec. 31, Microsoft reported a profit of
$5.86 billion, or 71 cents a share, down from $6.56 billion, or 78
cents a share, a year earlier. Microsoft said its per-share
earnings in the latest quarter were hurt by 2 cents from costs
related to integration and restructuring.
Revenue increased to $26.47 billion from $24.52 billion.
Analysts polled by Thomson Reuters expected per-share profit of
71 cents and revenue of $26.29 billion.
Microsoft, which makes most of its profit on software sales to
companies, reported that its commercial revenue rose to $13.3
billion from $12.7 billion.
In its cloud business, which is much smaller but considered key
to Microsoft's growth, the company reported that sales more than
doubled and is on pace to have $5.5 billion in revenue this fiscal
year. Microsoft cited sales of its Web-friendly version of Office,
a tool for salespeople and its Azure online service for the
growth.
In its devices and consumer segment, which includes the Nokia
phone segment and its Xbox business, sales improved 8% to $12.9
billion. Sales of Microsoft's Surface tablet jumped 24% to $1.1
billion. Xbox console sales fell to 6.6 million units, compared
with 7.4 million units reported a year earlier.
Through Monday's close, the stock has risen nearly 28% over the
past 12 months.
Tess Stynes contributed to this article.
Write to Shira Ovide at shira.ovide@wsj.com
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