Microsoft sees phone revenue decline by 54% in Q3 ahead of new Lumia launches

Microsoft (NASDAQ: MSFT) reported that its phone hardware business slumped in the third quarter, which was expected since it did not introduce new devices and has slashed its phone hardware unit.

Overall, net profit at the software giant for its fiscal first quarter ending Sept. 30 inched up 2 percent to $5.4 billion, excluding items such as severance and acquisition costs. Total revenue fell 7 percent year-over-year to $21.7 billion, though the company's earnings and sales both beat Wall Street analysts' expectations, according to Bloomberg.

However, Microsoft said phone hardware revenue declined 54 percent year-over-year at constant currencies to $1.1 billion, reflecting the company's "updated strategy." The phone unit had gross margin profits of just $100 million, compared to $3.4 billion in the company's "devices and consumer licensing" segment.

Meanwhile, according to the New York Times, on Wednesday Microsoft quietly cut 1,000 jobs, or  less than 1 percent of its global workforce. "The job reductions were spread across more than one business area and country and reflect adaptations to business needs," a company spokesman told the NYT

Earlier this month, the company introduced two new high-end Lumia phones, the Lumia 950 and 950 XL, which will be available in November for $549 and $649 unlocked, respectively. AT&T Mobility (NYSE: T) has said it will launch the Lumia 950, but declined to provide pricing or exact availability. No other U.S. carriers have signaled their support as of yet. Microsoft also unveiled the entry-level, LTE-capable Lumia 550, which will go on sale in December for $139, and it seems to be aimed at emerging markets.

Microsoft said in July it would cut around 7,800 jobs, mostly from its phone business, and CEO Satya Nadella has said Microsoft will now focus on building smartphones for three main categories: for business users, entry-level phones for value phone buyers and flagship phones for "Windows fans."

Microsoft has seen its star in smartphones wane as Apple's (NASDAQ: AAPL) iOS and Google's (NASDAQ: GOOG) Android have dominated the market. The company has now redefined -- some would argue by necessity -- its vision in the mobile market, which is to get Microsoft's cloud services and applications running on as many mobile "endpoints" as possible.

Microsoft aims to have Windows 10 installed on 1 billion devices by mid-2018, and Nadella said yesterday there are already 110 million active Windows 10 devices since the platform launched in July. Microsoft is also letting developers who have written apps for Android and iOS port those apps to phones and tablets running Windows 10. Microsoft has also hedged its bets by making its Office applications and Cortana digital assistant available on other platforms.

For more:
- see this release 
- see these slides 
- see this Seeking Alpha transcript
- see this WSJ article (sub. req.)
- see this NYT article
- see this Bloomberg article
- see this Engadget article

Special Report:  Wireless in the third quarter of 2015

Related articles:
Microsoft unveils Lumia 950 and 950 XL phones, but puts focus on larger Windows 10 ecosystem
Microsoft preps new Lumia smartphones, but phone ambitions have dimmed
Microsoft to shutter former Nokia plant in Salo, Finland, and axe 2,300 jobs in the country
Microsoft sees drop in phone revenue as Nadella pledges more efficiency for entry-level smartphones
Microsoft's Nadella pledges to stick with smartphones, yet sees mobile strategy as broader than phones

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