Microsoft's Revenues Neutered By Nokia

Written by Alex Zaharov-Reutt      24/07/2014 | 11:04 | Category: INDUSTRY

Microsoft has taken a massive US $700M hit on operating profits due in part to its $7B acquisition of Nokia, this may explain why Microsoft will soon sack 18,000 staff.

Last night was Microsoft's turn to explain how it is making and managing its money, with the somewhat unsurprising news that acquiring Nokia has burned a $700M hole in operating profits over the last quarter - a serious chunk of change for any company.  

Microsoft obviously purchased Nokia to gain its expertise, staff, factories, remaining consumer goodwill and extensive global network operator relationships for its Windows Phone initiative, making Microsoft an even bigger hardware manufacturer than it already was with Surface, Xbox and Windows keyboard, mouse and joystick accessories before it. 

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However, we also learned before the earnings report came out via a corporate-speak laden piece of visioneering from new Microsoft CEO Satya Nadella that Microsoft would be axing an unprecedented 18,000 jobs, with around 12,000 of those jobs to be shedded from the 25,000 Nokia staff inherited from the Nokia buyout. 

Seeing $700M go up in a puff of smoke would certainly put the bean-counters on high alert, we can certainly see why Microsoft felt the massive job cuts were necessary. 

Clearly, Microsoft didn't buy Nokia for a lark, but did it because Nokia is the No.1 Windows Phone manufacturer with the biggest Windows Phone user base, with then former Microsoft employee and then CEO of Nokia, Stephen Elop, transforming Nokia into Microsoft's biggest smartphone supporter. 

Microsoft obviously hopes that owning Nokia will give a real shot in the arm to Windows Phone sales and marketshare, the effectiveness of which we're sure to see over the next 12 months and beyond. 

But Microsoft's results weren't all just about losses from the acquisition of Nokia, with Microsoft actually increasing total revenue by 18pc on sales of its Windows operating systems, Office productivity software and its other products, with Office 365 and its Azure Cloud service doing particularly well. 

Still, while there's certainly plenty of azure-coloured lining in Microsoft's Nokian-cloud, the pain of acquiring what was once the world's biggest smartphone supremo will continue for a couple of years yet, with Microsoft predicting it will take until June 2016 for Nokia just to break even. 

Despite the current and forecast losses, buying Nokia was, at least in my mind, something Microsoft simply had to do to ensure the survival and future thriving of Windows Phone, making the acquisition anything but a bad call. 

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