Ripples in the cloud as Microsoft reports 25pc fall in profits

22 Apr 2016

Despite revenue gains with cloud products like Office 365, Microsoft faces difficult choices when it comes to the future of products like Phone

Software giant Microsoft reported a 25pc decline in profits for its third quarter, driven largely by large tax bills and unfavourable foreign currency rates.

Microsoft profits for the quarter came in at $3.8bn, down from $5bn a year ago.

For the third quarter, Microsoft reported revenues of $20.5bn and earnings per share of 62 cents.

However, Wall Street wasn’t happy with the results and stock fell 5pc in after-hours trading.

The company said that profits were offset by catch-up adjustments to keep up with the company’s tax affairs due to the changing mix of revenues across geographies and cloud services.

‘Digital transformation is the No 1 priority on our customers’ agenda’

Microsoft CEO Satya Nadella said that the company continues to make gains in cloud and Windows 10.

“Organisations using digital technology to transform and drive new growth increasingly choose Microsoft as a partner,” said Nadella.

“As these organisations turn to us, we’re seeing momentum across Microsoft’s cloud services and with Windows 10.”

Phone and OEM revenues on downward spiral

Revenue in Microsoft’s Productivity and Business Processes group, which comprises services like Office 365 and Dynamics CRM, grew 1pc to $6.5bn. Office 365, in particular, is rocketing, with revenues up 63pc.

Revenues in Microsoft’s Intelligent Cloud Group, which includes Server products, Azure and Enterprise Mobility, grew 8pc to $6.1bn.

However, revenue in the More Personal Computing group grew just 1pc.

Phone revenue declined by 46pc and Windows OEM revenue declined 2pc while Xbox Live monthly active users grew 26pc.

A particular bright spot was Surface revenue, which grew 61pc during the quarter.

“Digital transformation is the No 1 priority on our customers’ agenda,” said Kevin Turner, chief operating officer at Microsoft.

“Companies from large established businesses to emerging start-ups are turning to our cloud solutions to help them move faster and generate new revenue.”

Main Microsoft image via Shutterstock

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years