Software giant Microsoft Corporation (MSFT) releases its Q4 earnings for fiscal year 2016. With the following results:
- Revenue was $20.6 billion GAAP, and $22.6 billion non-GAAP
- Operating income was $3.1 billion GAAP, and $6.2 billion non-GAAP
- Net income was $3.1 billion GAAP, and $5.5 billion non-GAAP
- Diluted earnings per share was $0.39 GAAP, and $0.69 non-GAAP
Revenue in Productivity and Business Processes grew 5% to US$7b, Intelligent Cloud 7% to US$6.7b, Personal Computing declined 4% to US$8.9b.
Note: Service revenue exceeded 10% of total revenue for the first time in fiscal year 2016. As a result, we have separately disclosed product revenue from service and other revenue in our consolidated income statements. Product revenue includes sales from operating systems; cross-device productivity applications; server applications; business solution applications; desktop and server management tools; software development tools; video games; hardware such as PCs, tablets, gaming and entertainment consoles, phones and other intelligent devices and related accessories; training and certification of computer system integrators and developers. Service and other revenue includes sales from cloud-based solutions that provide customers with software, services, platforms, and content such as Office 365, Azure, Dynamics CRM Online, and Xbox Live; solution support; and consulting services. Service and other revenue also includes sales from online advertising.
SUMMARY
Revenue was $20.6 billion, down 7% year-over-year. The decrease in revenue was primarily driven by the net revenue deferral from Windows 10 of $2.0 billion. Windows 10 revenue is primarily recognized upfront in the More Personal Computing segment, and the deferral and subsequent recognition of revenue is reflected in Corporate and Other. Revenue included an unfavorable foreign currency impact of approximately $596 million or 3%. Non-GAAP revenue was $22.6 billion, up 2% year-over-year, including an adjustment for the net revenue deferral from Windows 10.
Gross margin was $12.6 billion, down 14% year-over-year. The decrease in gross margin was driven by the net revenue deferral from Windows 10 and an increase in cost of revenue. Cost of revenue was $8.0 billion, up 7% year-over-year, mainly due to growth in commercial cloud and search advertising, offset in part by lower phone sales, driven by the change in strategy for the phone business. Gross margin included an unfavorable foreign currency impact of approximately $573 million or 4%.
Operating income was $3.1 billion, compared to operating loss of $2.1 billion in the prior year. Current year operating income was negatively impacted by the net revenue deferral from Windows 10 and impairment, integration, and restructuring expenses of $1.1 billion. Prior year operating loss was negatively impacted by impairment, integration, and restructuring expenses of $8.4 billion. Non-GAAP operating income was $6.2 billion, down 3% year-over-year, including adjustments for the net revenue deferral from Windows 10 and impairment, integration, and restructuring expenses.
Diluted earnings per share (“EPS”) was $0.39, compared to $(0.40) in the prior year. Current year diluted EPS was negatively impacted by the net revenue deferral from Windows 10 and impairment, integration, and restructuring expenses, which resulted in a decrease to diluted EPS of $0.30. Prior year diluted EPS was negatively impacted by impairment, integration, and restructuring expenses, which resulted in a decrease to diluted EPS of $1.02. Non-GAAP EPS was $0.69, and grew 11% year-over-year, including adjustments for the net revenue deferral from Windows 10 and impairment, integration, and restructuring expenses.
