The Lumia 950 at Microsoft's launch event in New York Oct. 6, 2015. Credit: Marc Ferranti
Microsoft said Thursday that it sold half as many Lumia smartphones as it did a year ago, and that the trend will continue—what some might call a virtual death sentence for Microsoft’s Lumia smartphone line.
In its quarterly earnings call Thursday, Microsoft said that it sold 4.5 million Lumia phones during the fourth calendar quarter, down a whopping 57 percent compared to the 10.5 million sold during the same period a year ago. Phone revenue as a whole declined 53 percent, or $1.2 billion. Even worse, Microsoft chief financial officer Amy Hood told analysts to expect that its phone revenue would decline a comparable amount in the coming quarter as well.
That means that by the end of March, Microsoft’s phone business will be worth roughly $636 million in terms of revenue. That’s roughly three times the revenue recorded by Blackberry’s hardware division in November—and BlackBerry, of course, has basically transitioned into an Android phone company. Like the Black Knight, Microsoft’s phone business may not be quite dead yet, but how long does it have to go?
Why this matters: Oddly enough, perhaps the easiest pill to swallow is the one that might normally cost an executive his or her head: the recognition that Microsoft spent $7.2 billion in 2013 to buy Nokia’s device business, and has essentially blown it. But with $102 billion in cash and short-term investments, even $7 billion is a relative drop in the bucket. What has to sting, however, is watching Apple record $18.4 billion in profit alone, primarily by selling iPhones and related services. Microsoft is watching its own opportunity to develop a smartphone ecosystem slowly evaporate, quarter by quarter.
”Congratulations on a great quarter”
Overall, Microsoft’s profits declined by 15 percent to $23.8 billion, as profits fell 5 percent to just under $5 billion. (Factoring out currency fluctuations and older one-time charges, Microsoft’s revenue grew 3 percent, and profits by 20 percent.) The drop in phone revenue dragged down Microsoft’s overall devices revenue by 26 percent compared with the previous year, despite an all-time high for the Surface tablet business, which recorded $1.35 billion in revenue after the launch of the Surface Pro 4 and Surface Book.
Interestingly, not a single Wall Street analyst asked about the future of Microsoft’s phone business, generally choosing to ask about the state of the overall customer economy or Microsoft’s continued strength in the cloud or enterprise services. Neither did Hood or chief executive Satya Nadella, besides reporting on the performance of the business unit and its future prospects. In fact, practically every analyst congratulated Microsoft for a strong quarter despite the more sobering aspects.
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