Future of Microsoft's Phone Business in Question After Lumia Sales Plummet

Yet many of its customers still buy the old way, and it's those clients that are paring purchases as they deal with a sluggish economy, Hood said.

Revenue from business software and Internet-based services, known as cloud computing, didn't grow as much as many analysts expected. Before this report, Nadella had been posting better-than-projected results, fuelling a 31 per cent gain in the stock in the past year.

In a sign that Microsoft is still finding its way in the post-PC era, the tech giant reported a surprise drop in quarterly sales and profit. Analysts on average had expected a profit of 64 cents per share on revenue of US$22.09 billion, according to Thomson Reuters I/B/E/S. Net income declined to US$3.76 billion, or 47 cents a share. Meanwhile, Office 365 is becoming a growing platform for developers, as are other parts of the business such as Skype, he said. Without this "catch-up adjustment", Microsoft would have beaten analysts' profit projections, she said. During its fiscal third quarter, Windows 10 continued to benefit Bing, as Microsoft's search advertising revenue excluding traffic acquisition costs rose 18% on a constant currency basis. Dynamics CRM Online seats more than doubled from the same quarter past year.

In yesterday's earnings report, Microsoft noted that the company was at a $10 billion annualized "run rate" for its cloud businesses.

The persistent weakness in one-time software purchases and the shifting tax rate shows the transition Nadella is attempting - away from the PC market and these kinds of sales - will be neither simple nor short.

Microsoft continues its trend of reporting its financial results under three categories- Productivity and Business Processes (PBP), which includes Office and Office 365 (commercial and consumer); Intelligent Cloud(IC) division that includes Azure cloud, services, and non-cloud related servers; and the biggest division, i.e., More Personal Computing (MPC), which contains Windows, Devices, Gaming and Search.

In the segment that includes Microsoft's popular Office productivity software franchise, sales rose 1% to $6.52 billion-but profit declined 6.6%. Earnings per share are "closer to 66 cents when you take out the tax", Ms. Hood said in an interview.

The quarter was an abysmal one for worldwide personal-computer shipments, which slid to their lowest quarterly total since 2007, according to market researcher Gartner Inc.

"As these organizations turn to us, we're seeing momentum across Microsoft's cloud services and with Windows 10". Office 365 added 1.6 million subscribers to reach 22.2 million with revenues climbing by almost 63%. Still, Windows revenue from computer makers declined 2% in constant currency.

"In response to enterprise customer demand, and to increase our share in the cloud market, we grew operating expenses by 13% through Azure-focused investments across engineering, additional sales and marketing capacity and the acquisition of Xamarin", Hood said.

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Source: Future of Microsoft's Phone Business in Question After Lumia Sales Plummet