Nokia Takes Toll On Microsoft Corporation Profits

Nokia Campus

Microsoft Corporation (NASDAQ:MSFT) acquired the hardware and services business of Nokia Corporation (ADR)(NYSE:NOK) to fuel some life into it, but this deal came at a huge cost for Microsoft. The software giant released the Apr-Jun earnings report and as expected, the negative impact of the Nokia handset division is can be seen on Microsoft’s profit for the quarter.

Operating profit impacted

The $7 billion worth acquisition of Nokia’s handset division was completed on the 24th of April and it resulted in a massive drainage of operating profits for the quarter worth $700 million as informed by the company on Tuesday. To offset the losses arising from Nokia, the new CEO of the company Mr. Satya Nadella announced 18,000 job cuts, last week, which are the highest in the history of Microsoft.

The current share of smartphones sold by Microsoft is merely 5% of the worldwide sales. Post acquisition of Nokia’s handset business, the company has been able to sell roughly 5.8 million Nokia smartphones, which is way less than those sold by the arch rival Apple Inc. (NASDAQ:AAPL), which reported sales of 35.2 million handsets, in the same quarter ending June 28th.

A growth of 18% has been recorded in fourth-quarter revenue of other Microsoft Corporation (NASDAQ:MSFT) businesses. The sales of Windows, Office, database and other products jumped 10.5%, which is higher than the previous quarters. The profits generated from those too have gone up in comparison with previous quarters. The stock of the software giant went up by 1% to $45.33 after hours after the release of the earnings report.

Cloud-first clicking

Mr. Nadella sees Microsoft Corporation (NASDAQ:MSFT) as a “mobile-first, cloud-first” company. While the ‘cloud first’ part is very much close to fulfillment, the ‘mobile first’ has a long way to go before it sees success. Growth higher than 50% was recorded in the Office 365 sales in the quarter. It is expected that annual revenue worth $4.4 billion will be generated from the company’s cloud business which comprises of Azure computing service. Database software, called SQL Server, and the Windows operating software for computer servers are old businesses of the company and these too are reporting good growth.

Though it seems less possible, but if handled strategically the Nokia purchase can prove fruitful for the company in the long-run provided it is able to sell more smartphones. Once it is able to do so it will have a larger section of the customers getting attracted to the software, Internet services and mobile apps from Microsoft.