Microsoft Posts Smaller-Than-Expected Profit Decline -- Update

By Dow Jones Business News, 

By Shira Ovide and John Kell

Microsoft Corp. posted a smaller-than expected decline in profit in its fiscal third quarter, buoyed by sales strength in its consumer segment and a decline in operating expenses.

The earnings scorecard is the first under Satya Nadella, the Microsoft veteran who was named CEO three months ago. Mr. Nadella is expected to make an appearance on Microsoft's earnings conference call with analysts, in a break from his predecessor.

The quarter ended March 31 continued Microsoft's recent pattern of strong growth in software sales to companies, while the strength in its consumer segment was more of a surprise.

Microsoft said its revenue from sales of its software to companies rose 7% to $12.23 billion. The company's sales of email and word processing tools, computer servers, telecom systems and other essential corporate technology generate the majority of the company's gross profit. Investors closely watch how well revenue is holding up from this crucial base of commercial customers.

Meanwhile, revenue rose 12% to $8.3 billion from Microsoft's sales to consumers of products including Windows software for PCs, the Surface tablet and its Xbox videogame console.

Overall, net income declined 6.5% to $5.66 billion, or 68 cents a share, from $6.06 billion, or 72 cents a share, in the year-earlier quarter.

Revenue fell 0.4% to $20.4 billion, reflecting a year-earlier revenue bump from estimated upgrades of Windows and Office software.

Analysts, on average, estimated Microsoft would post earnings of 63 cents a share on revenue of about $20.4 billion, according to Thomson Reuters.

Total operating expenses declined 7.4% to $7.49 billion.

Within the commercial segment, Microsoft said Windows volume licensing revenue grew 11%, while Office 365 revenue more than doubled. The Azure cloud-computing system's top line also more than doubled.

And in the consumer segment, Microsoft said it sold 2 million Xbox console units during the quarter, including 1.2 million of the Xbox One that launched in November. Microsoft said its search engine Bing posted market share of 18.6% in the U.S., while advertising revenue for that business climbed 38%.

An ongoing decline in sales of personal computers has weighed on revenue to the Windows operating system, and for Microsoft Office. Businesses' demand for new PCs recently has improved, however, in part because companies were upgrading older machines before Microsoft stopped tech support earlier this month for a 12-year-old version of Windows.

Write to Shira Ovide at and John Kell at

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This article appears in: Technology

Referenced Stocks: MSFT

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