Reuters

(Reuters)

Microsoft Profit Slumps Across Multiple Business Units

Earnings Reuters

Microsoft Corp. said its earnings declined 25% in the third quarter, as the company reported lower operating profits across several of its business lines. 

Shares fell 4.1% to $53.46 in recent after-hours trading as per-share earnings and revenue missed expectations. 

The Redmond, Wash., software giant's Intelligent Cloud segment, which includes its Azure on-demand computing services, posted a revenue increase of 3.3% to $6.1 billion. But the segment's operating profit declined 14% to $2.19 billion. 

The Productivity and Business Processes segment, which includes Microsoft's Office franchise, sales rose 1% to $6.52 billion -- but profit declined 6.6%. 

Revenue from the More Personal Computing segment, which includes the flagship operating system Windows, edged up 0.9% to $9.46 billion, while operating profit for the segment jumped 57%. 

Factoring out currency effects, revenue in the Intelligent Cloud, Productivity and Business Processes, and More Personal Computing segments rose 8%, 6% and 3%, respectively. 

Windows revenue from computer makers declined 2% in constant currency, even as the uptake of Microsoft's nine-month-old Windows 10 has been rapid. Last month, Microsoft said that 270 million active devices run the new operating system, though many of those are free upgrades. 

Microsoft's own Surface line of computers remains a bright spot in the Windows world. The company said Surface revenue increased 61% in constant currency. 

Microsoft said its third-quarter net income fell to $3.76 billion, or 47 cents a share, down from $4.99 billion, or 61 cents a share, a year earlier. 

Excluding the impact of revenue deferrals and restructuring charges, adjusted earnings were flat at 62 cents. Revenue slid 5.5% to $20.5 billion, and on an adjusted basis rose 1.6% to $22.08 billion. 

Analysts surveyed by Thomson Reuters had expected Microsoft to report adjusted earnings per share of 64 cents and sales of $22.09 billion. 

Microsoft's gross margin, or the amount of gross profit the company generates for every dollar of revenue, fell to 62.4% from 67%. 

Write to Jay Greene at Jay.Greene@wsj.com

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