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Microsoft Earnings Fail to Impress

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Microsoft Earnings Fail to Impress

July 22 2015, 07.15am GMT


The effect on the bottom line, emanating from the massive Nokia write-down, was evident once Microsoft delivered its fiscal fourth quarter results after market closure on Tuesday.

Despite the negative effects of the Nokia write-down, analysts remain optimistic about

the future of the Microsoft commercial cloud business. The success achieved in the lower profile aspects of the Microsoft business model such as server software, databases, the Office software bundle and most importantly cloud computing is often overlooked in the face of highly publicized problems in the consumer technology areas.

Mark Murphy, J.P. Morgan analyst wrote a research note to clients saying that while commercial cloud is only responsible for 6 percent of Microsoft’s revenue, “it stands apart from the field due to its powerful organic growth trajectory of [greater than]  100% at a $6 billion run rate and will be critical in defining the next chapter for [Microsoft].”

Microsoft reported earnings of 62 cents per share on revenue of $22.18 billion, but showed a loss for the quarter once the previously disclosed write-downs were included. An analyst consensus estimate from Thomson Reuters had shown an expectation of earnings of 56 cents per share including the charges on $22.03 billion in revenue.

The $7.5 billion cost related to the Nokia acquisition, as well as other restructuring costs, had an extremely negative effect on the company’s results. Total impairment, integration and restructuring charges of $8.4 billion hit its fiscal Q4 results which culminated in a $3.2 billion reported loss.

The shift away from PC’s since Satya Nadella assumed office as CEO last year, with a greater emphasis on cloud services, is critical to the company’s future success. Microsoft’s revenue coming from commercial cloud computing grew 88% year-on-year, or 96% at constant currency. This segment had achieved an annualized revenue run rate of more than $8 billion, the company said.

CEO Nadella said in a statement, “Our approach to investing in areas where we have differentiation and opportunity is paying off with Surface, Xbox, Bing, Office 365, Azure and Dynamics CRM online all growing by at least double digits.”

While the share price fell by almost 3% in extended trading after the results became known, CNBC reported that analysts were saying “ignore the Microsoft earnings and buy the stock.”

Executive director at Nomura Securities Frederick Grieb had said earlier that, “as consumers look increasingly to the cloud, we believe Microsoft can leverage its existing relationships with enterprise customers to sell more premium workloads and services in the cloud”

Nomura confirmed its “buy” rating on the stock with a price target of $55 per share.

MT4 Chart: Microsoft

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