Microsoft’s Prospects Look Sunny, But Rain Clouds Linger

Small business is alive and well in Seattle. On account of a spell of unseasonably good weather in the city—68 degrees with nary a rain cloud in sight, to the amazement of every local—I stopped by historic Pike Place Market yesterday. Tourists, fishmongers, trinket-sellers—the century-old farmer’s market was as bustling as always. Even the employees at the original Starbucks store at 1912 Pike seemed energized. (Though it may have been the brew.)

Unfortunately, yesterday’s sunny conditions didn’t extend to Seattle’s biggest companies, some of which reported their earnings yesterday. Starbucks (SBUX) was one, taking a 4% hit (to $58) to its stock price in after-hours trading after revealing slowing sales growth amid an otherwise strong quarter. And shares of Microsoft (MSFT), headquartered across the water in Redmond, bore an even bigger blow of 5% (to less than $53) after strong growth in several businesses was overshadowed by the continued slump of the PC market.

Yikes.

There’s plenty to be said about both, and you can read more here and here. But allow me to briefly draw your attention to what I think is the most interesting item in Microsoft’s earnings report: the recurring phrase “lower phone sales.”

Two and a half years after Microsoft gobbled up Nokia’s devices business, it’s still feeling the heartburn. The company sold 2.3 million Lumia phones in three months’ time, just one-quarter of the amount it sold in the same span the year before.

The good news is that selling phones is still a profitable business for Microsoft. The bad news is that its revenue from doing so is plummeting, down 47% year over year.

None of this is a surprise, of course. A year ago, Microsoft’s management team waved a white flag of sorts and promised to dramatically restructure the business to the tune of 7,800 jobs cut. Still, it is remarkable just how much of a drag Microsoft’s phone business continues to be on growth areas like cloud computing or gaming.

Sunny with a good chance of rain? You know, I think the locals have a term for that: “liquid sunshine.”

Best wishes for a productive day.