Microsoft claimed “modest” improvements in its Lumia smartphone business, as it also went out of its way to highlight the positives for its much-maligned Surface tablet business.
The company sold 9.3 million Lumia smartphones in the quarter to 30 September, noting “modest growth over the prior year”. Under the auspices of Nokia, 8.8 million Lumia devices were shipped in the same calendar period last year.
This year’s performance was driven by sales in Europe, with market share gain in lower priced devices.
Non-Lumia phones “performed in line with the market for feature phones”. This business was also impacted by “portfolio rationalisation as we execute on our phone strategy”, Amy Hood, Microsoft’s CFO, said.
Revenue for the phone hardware unit was $2.61 billion, compared with $1.98 billion in the earlier sequential quarter (Microsoft did not own the unit a year ago). GAAP gross margin was $0.48 billion, up from $0.05 billion.
“We have moved quickly to integrate the business. We are executing on all of the restructuring charges we talked about in the last quarter, while driving Lumia share growth,” Satya Nadella, Microsoft’s CEO, said.
Amid massive job cuts, Hood said: “We started right-sizing our manufacturing capacity, created one development team to accelerate the pace of innovation, and focused our sales and marketing efforts on Lumia, which grew in several key markets.”
Microsoft spent as much time talking about its Surface tablet line, with Nadella stating that its product line-up “is the right one and customers are responding favourably”.
Surface revenue of $908 million was “driven by strong interest from students, professionals and increasingly enterprises for Surface Pro 3”. Gross margin for the tablet business was positive during the period.
CFO Hood said that Surface Pro 3 unit sales “are pacing at twice the rate of what we saw with Pro 2”. Sales in the same period last year were around $400 million.
Looking to the next quarter, the company expects phone revenue to be in the $2 billion to $2.2-bilion range. It anticipates both year-on-year and sequential growth in Lumia units, driven by its lower-tier 500 and 600 series devices.
Away from Lumia, both volumes and selling prices of feature phones are expected to fall.
On a group level, the company reported a net profit of $4.54 billion, down from $5.24 billion, on revenue of $23.2 billion, up 25 per cent year-on-year – record sales for Microsoft’s Q1 (to 30 September).
Revenue growth was 11 per cent excluding the recently-acquired phone unit.
It saw $1.14 billion of integration and restructuring expenses related to its restructuring plan and the ongoing integration of the former Nokia business.