Microsoft Corporation (NASDAQ/MSFT) reported its earnings for the quarter ended June 30, 2015 on Tuesday July 21st, reflecting its focus on cloud computing and enterprise growth alongside the painful unwinding of its Nokia deal.
Shares of Microsoft dropped over four percent at the beginning of trading on Wednesday morning to around $45.50.
Microsoft reported a $3.2 billion quarterly loss after it was forced to take a $7.5 billion impairment charge related to its failed acquisition of Nokia’s mobile device business. (Source: Microsoft Earnings Press Release, last accessed July 22, 2015.)
The company suffered significantly from the failed acquisition of the Nokia segment. These results include the impact of the $7.5 billion non-cash impairment charge related to associated assets, in addition to a restructuring charge of $780 million. On top of these costs, there was also a charge of $160 million related to the previously announced integration and restructuring plan.
It wasn’t a great quarter overall for the company. Combined, these items totaled $8.4 billion or a $1.02 per share negative impact. Excluding this impact, operating income and earnings per share (EPS) would have been $6.4 billion and $0.62, respectively.
Notably, the strengthening of the U.S. dollar compared to foreign currencies had a significant impact on results in the quarter. On a constant currency basis, revenue and gross margin would have declined two and three percent respectively while operating income would have declined one percent.
A weak personal computer (PC) market added to the pain with Windows Original Equipment Manufacture (OEM) sales falling 22% following the XP end-of-support refresh cycle.
However, there was some bright news in the report. Commercial cloud revenue soared 88%, and is now on an annualized revenue run rate of over $8.0 billion. On top of that, the company was able to add nearly three million Office 365 consumer subscribers during the quarter, bringing its total subscriber base to 15.2 million.
The company is just days away from the start of Windows 10. It remains to be seen how much of a positive impact the new OS will have on Microsoft’s revenue and earnings. Windows 10 provides advanced security capabilities with additional features for hardware-based security.