Microsoft Sales Rise 25%, and Investors Reward Its Shares

SEATTLE - Microsoft reported on Thursday a 25 percent jump in sales for the quarter as its acquisition of Nokia's mobile phone business continued the company's transformation from a traditional software company.

For the three months ended Sept. 30, Microsoft's fiscal first quarter, the company said its net income was $4.54 billion, or 54 cents a share, compared with $5.24 billion, or 62 cents a share, a year ago.

The average estimate of analysts surveyed by Thomson Reuters was 49 cents a share for the period and $22.02 billion in revenue.

The profit decline was due in large part to a $1.14 billion restructuring and integration expense related to the company's acquisition of the mobile business of Nokia, the Finnish handset manufacturer. Without that expense, Microsoft would have reported earnings of 65 cents a share.

In July, Microsoft announced plans to reduce costs by laying off up to 18,000 employees, or about 14 percent of its global work force, by the end of June next year. Most of the cuts are related to the company's Nokia acquisition.

The results impressed investors, especially when compared to weak results from other technology bellwhethers like IBM. 'I thought these were stellar numbers in a choppy I.T. spending environment,' said Daniel Ives, an analyst at FBR Capital Markets.

Microsoft shares rose more than 3 percent in after-hours trading.

The addition of Nokia to its business added $2.6 billion in phone hardware revenue that did not exist for Microsoft during the year earlier period. Without that boost, Microsoft's revenue would have grown 11 percent in the quarter.

Microsoft has struggled to get its footing in recent years as the personal computer and traditional software businesses have shown signs of weakness and newer technologies, like mobile and cloud computing, have surged. Microsoft has stumbled badly in mobile. Nokia's share of the worldwide smartphone market has declined in recent quarters. Microsoft said it sold 9.3 million of its Lumia smartphones in the quarter, representing what it called modest growth from a year earlier.

Microsoft's cloud business, though, is showing signs of strength that have encouraged investors. During the quarter, the company said its commercial cloud revenue grew 128 percent during the quarter from a year ago.

Microsoft is hunting for new growth opportunities beyond the PC, the device to which its fortunes have been tethered for most of its 39 years. According to IDC, the technology research firm, worldwide shipments of PCs declined 1.7 percent during the quarter, a poor showing for the industry but a smaller decline than the firm and many investors had previously expected.

Smartphones and tablets have begun to handle many of the computing chores that were once exclusively performed on PCs. Microsoft sought to reinvigorate the PC market two years ago with the release of Windows 8, an operating system that was designed to power both conventional PCs and touch-based devices like tablets.

But Windows 8 has delivered disappointing results. Recently Microsoft announced plans for a new operating system, Windows 10, that will backtrack from some of the more radical design changes the company made in Windows 8.