In the wake of a wildly successful partner conference and a much more dour and massive set of layoffs, Microsoft will announce its quarterly and annual earnings later today. It's an odd day for such a release—Microsoft usually does such things on Thursday—but my sources say the date was changed to accommodate the firm's schedule, which includes another massive event, this time for employees, that is happening this week in Atlanta. So what can we expect?
After all, it's been a crazy year.
Microsoft's fiscal year ran from July 1, 2013 to June 30, 2014. So the firm will announce both quarterly (FQ4, Q2) and full-year earnings today. Looking back over the previous three quarters of this fiscal year, we see some pretty stunning results, especially given all of the changes that have racked both Microsoft and the wider tech industry during this time period:
Q1 FY2014: Net income of $5.24 billion on revenues of $18.53 billion. In Microsoft Quarterly Earnings: Profits Up 17 Percent, Revenues Up 16 Percent, I explained that Microsoft was weathering another down year for PC sales with strong Windows "pro" sales overcoming lower PC maker-based sales. Indeed, commercial revenue overall won the day with 10 growth percent to $11.20 billion. Commercial cloud revenue grew 103 percent.
Q2 FY2014: Net income of $7.97 billion on revenues of $24.52 billion. Another solid quarter, as described in Microsoft Reports Record Quarterly Revenues of $24.52 Billion. Windows "pro" was up 12 percent and commercial revenues were again the differentiator.
Q3 FY2014: Net income of $5.66 billion on revenues of $ $20.40 billion. As noted in Microsoft Earns Less, But Beats Expectations, Microsoft's results handily beat earnings estimates though net income dropped slightly when compared with the same quarter a year ago. The quarter was marked by stronger than expected growth in "pro" versions of Windows, thanks in part to the expiration of Windows XP support, and record sales of Office 365.
Since then, of course, a lot has happened.
Microsoft concluded its compulsory acquisition of the important parts of Nokia in April, at an initial up-front cost of $7.4 billion, and absorbing about 25,000 new employees. But the insider bit here is that Satya Nadella, who was not CEO when the deal was announced, actually opposed the Nokia purchase. Since then, he's voiced his support, in what is now understood to be a politic way. After all, 12,500 of Microsoft's laid off workers—fully half of the Nokia contingent—will come from Nokia's ranks.
Given the one-two seismic crashes of the Nokia purchase and those layoffs, one might concluded that Microsoft's fiscal fourth quarter could get ugly in a one-time sense. (Though the timing of layoffs suggests that part of that hit will come in FY15.) I would expect the firm to try and absorb as much pain as it can right up front, and get that out of the way.
From a product perspective, Microsoft no longer provides the deep dives into its major offerings that it used to. I highlighted how Microsoft highlighted Windows "pro" in each of the preceding quarters because the company clearly wants to push any success angle it can during a difficult transition. And consumers simply hasn't responded to Windows 8 in a positive way, resulting in a landmark PC sales crash over the past few years. (Yes, there are other factors at work there.)
Too, while Office 365 has seen record uptick, that business is still a tiny fraction of Office overall. The Windows Phone business is still tiny, but is seeing a nice bump thanks to "zero dollar" licensing, a move that will help the unit sales numbers, but not the bottom line. The short version is that we're not likely to see more than a few cherry-picked specifics when it comes to Microsoft's actual products and services. This makes it hard to gauge how well they're really doing in the market, and that's by design.
Looking at the estimates, Microsoft is expected to come in somewhere around $23 billion in revenues, a figure that is up quite a bit from the same quarter a year ago ($19.9 billion). That would be a fine start to the Satya Nadella era—this past quarter is the first full quarter during which he was CEO—and a possible bellwether for the year to come.
Microsoft announces its earnings at roughly 5pm ET.