Updated: Microsoft's profit declines, Lumia smartphone sales reach 5.8M in quarter

Microsoft (NASDAQ: MSFT) reported a 7 percent decline in its quarterly profit, largely due to the effects of incorporating Nokia's handset business. But the company's revenue increased with the addition of the $1.99 billion in revenues the company scored from Nokia's handset operations. Importantly, Microsoft sold 5.8 million Lumia-branded Windows Phones between April 25 and June 30 (from the close of Microsoft's purchase of Nokia's phone business to the end of its fiscal quarter). During the full second quarter of last year, Nokia sold 7.4 million Lumia smartphones.

Microsoft CFO Amy Hood said the bulk of the company's Lumia sales occurred mainly in the low end of the company's phone portfolio. She specifically mentioned sales of the Lumia 500 and Lumia 600 series devices.

Indeed, Microsoft is looking to push Lumia price points lower and lower, and this week announced its new Lumia 530, which sports a 4-inch screen, Windows Phone 8.1 and a $115 price tag. T-Mobile US (NYSE:TMUS) said it will sell the device later this year.

Microsoft CEO Satya Nadella also confirmed rumors that the next major version of Microsoft's Windows operating system will work across all devices, from PCs to phones. 

"We will streamline the next version of Windows from three operating systems into one single converged operating system for screens of all sizes," Nadella said during the company's earnings call.

Although Microsoft has been moving toward this goal for years, Nadella promised the company would offer a unified Windows platform in the operating system's next major release. Specifically, he said one team would continue developing the Windows, Windows Phone, Xbox, Windows RT and Windows Server products, and those products would all use the same core technology. And Microsoft will offer a unified store and commerce mechanism across all its Windows products, as well as ways for developers to use one platform to develop apps for all of Microsoft's Windows products.

But Nadella noted that the company would continue to target Windows into different areas with market-specific SKUs, or stock keeping units: "Our SKU strategy will remain by segment. We will have multiple SKUs for enterprises, we will have for OEM, we will have for end-users.... We will be disclosing and talking about our SKUs as we get further along," he said during the call.

Nadella also commented on Microsoft's market share in the mobile industry. He said the company continues to gain share in smartphones, particularly in Europe, on the back of sales of less expensive smartphones. But Nadella said Microsoft will work to increase its mobile market share by improving the overall experience of all of its services across a range of devices, including iOS and Android devices. He said the company is looking to improve users' work and personal digital lives with useful and helpful services such as Cortana, the new voice-activated digital assistant Microsoft introduced to Windows Phone earlier this year.

To be clear though, Windows Phone is still lagging badly in terms of global smartphone market share. Research firm IDC thinks the platform will capture just 3.5 percent of the global smartphone market in 2014.

In its next quarter, Microsoft expects revenues from its phone business to total between $1.9 billion and $2.3 billion. The company reiterated that its phone business is intended to highlight advancements in the Windows Phone ecosystem, and not to capture the majority of the market's volumes.

In order to drive additional sales of Windows Phone devices, Microsoft earlier this year announced it would no longer charge manufacturers a fee to build Windows Phone devices. Microsoft is hoping the move will position Windows Phone more positively against Android, which is free for manufacturers to use. In addition to the Nokia business and well-known hardware partners like Huawei, LG Electronics, Samsung Electronics and ZTE, Microsoft's Windows Phone partners include Foxconn, Gionee, Lava, Lenovo, Longcheer, JSR, Karbonn, Micromax and Prestigio.

As for the company's tablet business, Microsoft said its Surface tablets brought in $409 million in revenue during the quarter, mainly from sales of devices like the Surface 2, Surface 2 Pro, and Surface Pro 3.

Last week Microsoft said it will cut up to 18,000 jobs this year, or 14 percent of its workforce. It is expected that many of those cuts will be to employees the company acquired when it bought Nokia's devices and services business for around $7.4 billion.

Overall, Microsoft reported quarterly profit of $4.61 billion, down slightly from the $4.96 billion it notched in the year-ago quarter. That's roughly in line with what Wall Street analysts had expected. Microsoft's revenue rose around 17 percent year-over-year to roughly $23.38 billion, above analysts' estimates.

For more:
- see this Microsoft release
- see this VentureBeat article
- see this Re/code article
- see this WSJ article (sub. req.)
- see this New York Times article
- see this Reuters article

Special Report: Wireless in the second quarter of 2014

Related Articles:
Microsoft to slash 18,000 jobs, many of them former Nokia workers
As Microsoft reportedly readies job cuts, Nadella promises to rethink core products
Microsoft's Nadella: There's room for us with Apple and Google in the consumer market
Nokia X2 shows Microsoft's continued support of Google's Android

Article updated July 23 with information about the Lumia 530 and Microsoft's plan to unify Windows. Article also updated July 23 to clarify Microsoft's Lumia sales during the quarter.

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