Microsoft (MSFT 0.30%) reported a $3.2 billion quarterly loss after the software titan was forced to take a $7.5 billion impairment charge related to its failed acquisition of Nokia's mobile device business.
Excluding the Nokia writedown and $940 million in restructuring charges, Microsoft's adjusted earnings per share came in at $0.62, ahead of Wall Street's estimates of $0.58. Microsoft's $22.2 billion in reported revenue also surpassed consensus estimates of $22 billion, yet this figure represented a 5% year-over-year decline.
Gross margin also declined, falling 7% to $14.7 billion, and adjusted operating income decreased 3% to $6.4 billion.
It should be noted that currency fluctuations dampened Microsoft's results. On a constant currency basis, revenue and gross margin would have declined 2% and 3%, respectively, and operating income would have declined 1%.
A weak PC market added to the pain, with Windows OEM revenue falling 22% following the XP end-of-support refresh cycle.
There were, however, some positives in the report. Commercial cloud revenue surged 88% (and 96% in constant currency) -- driven by strong results for Microsoft's Azure enterprise cloud-computing platform and Office 365 cloud-based productivity software -- and is now on an annualized revenue run rate of over $8 billion.
Microsoft also added nearly 3 million Office 365 consumer subscribers during the quarter, bringing its total subscriber base to 15.2 million and demonstrating further progress toward successfully shifting to a cloud-based model for its all-important Office franchise.
Surface revenue was impressive as well, leaping 117% to $88 million. Strong sales of the Surface 3 and Surface Pro 3 bode well for continued share gains in the tablet arena -- a needed positive, especially considering Microsoft's struggles in the mobile-phone market.
Xbox and Bing likewise delivered solid results, with Xbox revenue jumping 27% on strong console sales, and search advertising revenue rising 21% as Bing's U.S. market share increased 110 basis points to 20.3%.
Management is looking forward to the upcoming launch of Windows 10 on July 29, with the new software expected to fortify Microsoft's ecosystem. Yet with Windows 10 being offered as a free upgrade to users of Windows 7 and 8, it remains to be seen how much of a positive impact the new OS will have on Microsoft's revenue and earnings.