By Shira Ovide and John Kell
Microsoft Corp. posted a smaller-than expected decline in profit
in its fiscal third quarter, buoyed by sales strength in its
consumer segment and a decline in operating expenses.
The earnings scorecard is the first under Satya Nadella, the
Microsoft veteran who was named CEO three months ago. Mr. Nadella
is expected to make an appearance on Microsoft's earnings
conference call with analysts, in a break from his predecessor.
The quarter ended March 31 continued Microsoft's recent pattern
of strong growth in software sales to companies, while the strength
in its consumer segment was more of a surprise.
Microsoft said its revenue from sales of its software to
companies rose 7% to $12.23 billion. The company's sales of email
and word processing tools, computer servers, telecom systems and
other essential corporate technology generate the majority of the
company's gross profit. Investors closely watch how well revenue is
holding up from this crucial base of commercial customers.
Meanwhile, revenue rose 12% to $8.3 billion from Microsoft's
sales to consumers of products including Windows software for PCs,
the Surface tablet and its Xbox videogame console.
Overall, net income declined 6.5% to $5.66 billion, or 68 cents
a share, from $6.06 billion, or 72 cents a share, in the
year-earlier quarter.
Revenue fell 0.4% to $20.4 billion, reflecting a year-earlier
revenue bump from estimated upgrades of Windows and Office
software.
Analysts, on average, estimated Microsoft would post earnings of
63 cents a share on revenue of about $20.4 billion, according to
Thomson Reuters.
Total operating expenses declined 7.4% to $7.49 billion.
Within the commercial segment, Microsoft said Windows volume
licensing revenue grew 11%, while Office 365 revenue more than
doubled. The Azure cloud-computing system's top line also more than
doubled.
And in the consumer segment, Microsoft said it sold 2 million
Xbox console units during the quarter, including 1.2 million of the
Xbox One that launched in November. Microsoft said its search
engine Bing posted market share of 18.6% in the U.S., while
advertising revenue for that business climbed 38%.
An ongoing decline in sales of personal computers has weighed on
revenue to the Windows operating system, and for Microsoft Office.
Businesses' demand for new PCs recently has improved, however, in
part because companies were upgrading older machines before
Microsoft stopped tech support earlier this month for a 12-year-old
version of Windows.
Write to Shira Ovide at shira.ovide@wsj.com and John Kell at
john.kell@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires