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Microsoft Completes Nokia Acquisition

Posted on Wednesday, Apr 30th 2014

IDC’s recently released quarterly worldwide PC shipment tracker reports a 4.4% decline over the year in PC shipments to 73.4 million units. Analysts were pleased by the results as they were anticipating a 5.3% decline in the market. During the recent quarter, Microsoft (Nasdaq: MSFT) announced the end of Windows XP support. Analysts believe that this move has spurred sales on account of PC refresh.

Microsoft’s Financials
This was the first quarter for Microsoft under the guidance of the new CEO Satya Nadella, and the results were impressive. Despite the declining PC sales, third quarter revenues were flat at $20.40 billion. They ended the quarter with an EPS of $0.68. The market was looking for revenues of $20.39 billion with an EPS of $0.63.

By segment, revenues from devices and consumer segment grew 12% to $8.3 billion. Licensing revenues during the quarter rose marginally to $4.38 billion and hardware sales increased an impressive 40% to $1.972 billion. Their commercial division reported a 7% revenue growth while revenues from cloud computing grew to $367 million.

Among other metrics, Office 365 Home added nearly 1 million subscribers during the quarter to end with 4.4 million subscribers. Xbox sales continued to impress the market. They reported sales of 2 million consoles with the recently released Xbox one recording more than 1.2 million sales. After a slow start, their tablet Surface is also showing strong increase and revenues grew more than 50% to $500 million. Within the online segment, Bing’s search share in the US grew to 18.6% and search advertising revenue grew 38%.

For the current quarter, Microsoft projected revenues of $20.4 billion-$21.0 billion, compared with the market’s projections of $21.4 billion.

Microsoft’s Product Expansion
As part of their enhanced cloud offerings, Microsoft has been focused on increasing the usage of their file storage service – OneDrive. Recently, they announced plans to increase the OneDrive for Business storage from 25GB to 1 TB per user. Additionally, all Office 365  ProPlus customers will also get 1TB of OneDrive for Business storage space. Microsoft is also helping their customers migrate to OneDrive for Business from other platforms. Microsoft is intensifying their competition with other storage service providers like Box. They believe that they offer a better solution as they are able to deliver an all-in-one product rather than integrating isolated technology pieces from multiple companies.

Recently, Microsoft also announced their plans to release original content for Xbox users. Xbox Entertainment Studios will be producing TV shows available to view on all Xbox and Microsoft devices. The programming line-up includes a series based on the video game Halo which will have Steven Spielberg as its executive producer, documentary series Signal to Noise, and Atari: Game Over to name a few.

Microsoft Nokia Acquisition
After months of legal and compliance delays, Microsoft finally completed the $7.5 billion acquisition of Nokia. The acquisition brings 30,000 employees to Microsoft along with Nokia’s, once leading, phone business. But running the phone business is not going to be easy. Google had acquired Motorola Mobility with a similar intention and then sold it off recently. Google’s acquisition, however, had a central goal of acquiring patents that would help them defend themselves against Apple.

Microsoft would like to see sales of Nokia Lumia phones to be close to 50 million, but Nokia reported a comparatively small 30 million sales for the phone. In fact, during the recent quarter, Nokia saw market share in Europe drop to 8.1% compared with Android’s 70.7% and Apple’s 19.2% share. But there is a silver lining. Microsoft will continue to support Nokia’s recent Android OS based Nokia X series phones. Microsoft hopes that they will be able to lure some of these new users to services such as Skype, and OneDrive.

Microsoft’s stock is trading at $40.87 with a market capitalization of $337.6 billion. It touched a 52-week high of $41.66 earlier this month. I must say, Microsoft is executing reasonably well, having had to navigate through multiple major technology shifts over the last two decades that I have studied them.

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