Microsoft's phone revenue drops 71% as pivot to the cloud continues

Microsoft (NASDAQ: MSFT) continues to market itself as a major player in "the mobile-first, cloud-first world," but it certainly appears to be much more focused on the latter than the former.

The software giant said its phone revenue dropped a whopping 71 percent in the latest quarter as it continued to retreat from the smartphone business. Microsoft managed to beat expectations for both sales and profit nonetheless, the Wall Street Journal reported, posting revenue of $22.6 billion and earnings per share of 69 cents. Shares climbed more than 4 percent in after-hours trading Tuesday.

Microsoft for years has struggled in vain to gain a foothold in the smartphone market, of course, and a year ago it announced plans to cut roughly 7,800, mostly from its phone business, and suffer a $7.6 billion writedown related to its 2014 acquisition of Nokia, for which it paid $7.2 billion.

And the last several months indicate Microsoft may finally have given up hope of ever becoming a major smartphone vendor or mobile operating system provider: After reporting a 73 percent plunge in Lumia handset sales during the first quarter of 2016, the company all but ignored mobile and smartphones at its Build developer conference in March, and in May it cut as many as 1,350 jobs in Finland and up to 500 jobs globally as it continued to withdraw from the smartphone business. Two months ago, it sold its feature-phone business to a Foxconn subsidiary in a $350 million deal that paves the way for Nokia to reenter the market.

But while Microsoft may never become the major player in smartphones that it once seemed destined to be, mobile clearly remains a major priority – if not necessarily the top priority -- in Redmond. Indeed, mobile was a key reason the company agreed last month to acquire LinkedIn for $26.2 billion: The social network for businesspeople saw 49 percent year-over-year growth in mobile usage, and 60 percent of its traffic now occurs on smartphones and tablets.

Revenue from Azure more than doubled in the latest quarter year-over-year, and it's becoming increasingly clear that the company views its cloud-computing platform as its key to the future. Mobile must play a fundamental role in that business, of course, because users are increasingly turning to their phones to access cloud-based data and increase productivity.

Microsoft may continue to push its own mobile platform, perhaps even with a long-rumored Surface phone. But the company seems to finally accepting that the vast majority of its cloud-based activity will be driven by users on phones running Android or iOS.

For more:
- see this Microsoft press release
- read this Wall Street Journal report

Related articles:
Microsoft to spend $26.2B to acquire LinkedIn and grow its mobile business audience
Microsoft Lumia sales plunge 73 percent in latest quarter
Mobile and smartphones almost entirely absent at Microsoft's Build conference
Microsoft kills Android bridge project for Windows 10 to focus iOS instead
Microsoft faces uphill climb convincing iOS and Android developers to port apps to Windows 10
Microsoft reportedly developing a Surface phone for release later next year

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