Microsoft (NASDAQ: MSFT) reported a jump in smartphone sales for the third quarter and also confirmed it will put its own brand name in place of the Nokia (NYSE:NOK) brand on its Lumia Windows Phone smartphones going forward.
Microsoft's sales jumped 11 percent, excluding Nokia's devices and services business, and easily beat analysts' expectations. Overall Microsoft said revenue jumped to $23.2 billion, which handily outpaced analysts' expectations of $22 billion, according to Reuters.
However, Microsoft's profit fell 13 percent year-over-year to $4.5 billion, mainly due to an expected $1.1 billion charge related the 18,000 job cuts the company announced in June. Fully 12,500 of those cuts are coming from former Nokia workers that Microsoft acquired in April.
The software giant said it sold 9.3 million Lumia phones in its most recent quarter, its fiscal 2015 first quarter, up 5.6 percent from the 8.8. million Nokia sold in the year-ago period. In its most recent quarter Microsoft recorded phone revenue of $2.6 billion.
Microsoft CEO Satya Nadella said on the company's earnings conference call that the firm has moved quickly to integrate the Nokia phone business. "We are executing on all of the restructuring changes we talked about in the last quarter while driving Lumia share growth," he said, according to a Seeking Alpha transcript of his remarks. "We saw modest growth over the prior year driven by sales in Europe where we gained share with lower-price devices."
On the company's earnings call Microsoft CFO Amy Hood said, in the company's phone business, "the focus of the quarter was on positioning the business for the future." She said the company remains committed to having the phone business break even in fiscal 2015.
Hood added that as part of Microsoft's restructuring efforts, the company improved its manufacturing capacity, created one development team to accelerate innovation, and focused its sales and marketing efforts on the Lumia brand. She said sales of non-Lumia phones were down, driven by declines in the underlying feature phone market, as well as "portfolio rationalization" as Microsoft executes on its phone strategy. Microsoft had said it would abandon sales of the Android-based X phones Nokia had been making.
Looking ahead to the next quarter, Hood said Microsoft expects to bring in phone hardware revenue of $2 billion to $2.2 billion. She said the company expects year-over-year and sequential growth in Lumia units driven by lower-end 500 and 600 series devices. "As a result of the ongoing market dynamics and our portfolio rationalization, we expect those volumes and ASPs of non-Lumia devices to decline" in the next quarter, she said.
Microsoft also confirmed that in the coming weeks and months, Microsoft will transition from the Nokia Lumia brand to the Microsoft Lumia brand for its smartphone branding. When Microsoft officially acquired Nokia's devices business this spring, Microsoft was only licensed to use the Nokia name on Lumia smartphones for 18 months after the deal's closing. Microsoft can use the Nokia brand name on feature phones for 10 years.
"We want to simplify and unify our smartphone branding," Microsoft phone unit marketing chief Tuula Rytilä said in an interview with Re/code. "We are really using Lumia as connective tissue."
Rytilä declined to say when the first "Microsoft Lumia" phone will come to market, but told the in-house Nokia Conversations blog that "what I can say is that that we are looking forward to unveiling a Microsoft Lumia device soon. This is of course a natural progression as all devices that once came from Nokia now come from Microsoft."
Microsoft's bigger challenge is getting other hardware vendors to not just make but also aggressively market Windows Phone devices. The company disclosed last month that it has attracted 50 new hardware partners that are making Windows-based smartphones and tablets since the company decided in April that it would make Windows free for devices with screens smaller than nine inches.
- see this release
- see this Seeking Alpha transcript
- see this WSJ article (sub. req.)
- see this Reuters article
- see this NYT article
- see this Re/code article
- see this Nokia Conversations post
- see this The Verge article
Special Report: Wireless in the third quarter of 2014
Report: Microsoft brand replacing Nokia for future Lumia devices
Microsoft's Nadella: Windows 10 will boost our position in Internet of Things market
Microsoft scores 50 new device partners after making Windows free for smaller devices
Microsoft axes 2,100 workers, shutters Silicon Valley research lab
Microsoft rolls out new mid-range Lumia smartphones, with a focus on camera technology
Rumor Mill: Microsoft likely to abandon Nokia brand, especially on newer products