The first signs appear in Mr. Nadella's memo to employees about the 18,000 employee workforce reduction. Having been responsible for a reduction myself (about 1% of MSFT's, but 15% of our workforce), and having been part of several Wall Street reductions myself, I can say that they are almost always done badly for the organization's survivors and inhumanely for the affected employees. So what about this announcement?
The first was a quick reprise of contextual messages. The company is on the road to becoming a platform and productivity company, which employees had heard the previous week. Having a focus, however, isn't a be all and end all.
Aligning the organization, changing its culture, and improving communications and decision making within the organization are key initiatives that will take time. The organizational staff reduction, unfortunately, is part of that longer-term change. Thus, the CEO makes it clear that this is not an effort to cost cut one's way to success, as has been done with blazing incompetence by the likes of "Chainsaw" Al Dunlap, and Ed Lampert at Sears, to name two. Along with these reductions will come resource additions in other areas. The key message to employees: your organization is committed to grow, not to shrink its way to success.
Finally, there is a human element, expressed in the statement, "We will offer severance to all employees impacted by these changes, as well as job transition help in many locations, and everyone can expect to be treated with the respect they deserve for their contributions to this company." This isn't a phrase that would normally be offered by HR or by the general counsel; it really seems like it is a sentiment coming from the CEO, and that's good for the effected employees and for the survivors as they go through the grieving process with their former colleagues.
On the quarterly conference call, there was a clear distinction between the styles, presentations, and nuances of the CEO and the CFO. In fact, CFO Amy Hood sounded absolutely liberated from her former role of merely explicating and micro-parsing the financial numbers (deferred revenue forecasts, contracted versus billed revenue), and she added the CFO's restrained nuance to the always more enthusiastic and high level comments of a new CEO. Long term investors expect and like this differentiated,tag team approach. Together, it was a much more well stitched together set of messages than the previous environment, dominated by the overbearing Steve Ballmer.
GAAP revenue for FY14 Q4 increased 18% year-over-year to $23,382 million, which included $1.99 billion of revenue from the inclusion of NDS for a partial quarter. GAAP gross margin of $15,787 million increased by 10%, and the GMR was a robust 67.5%, although this was down from an unusually higher rate in the prior year period.
GAAP operating income of $6,482 million grew 7% over the prior-year period, and the margin was 27.7%, with all the moving parts. Nokia NDS contributed $(692) million to the quarter's operating income, of which $127 million was for integration and restructuring expense in the period.
Diluted EPS of $0.55 per share declined 7% on a GAAP basis from $0.59 in the prior year period. Dividends per share were $0.28 in FY14 Q4. On a non-GAAP basis, which is interesting but not decisive to an investment thesis, diluted EPS of $0.66 increased 10% over the prior-year period.
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- Invest in the core platform and productivity businesses, e.g. cloud and device operating systems.
- Consolidate overlapping development efforts, which is a corollary of the reductions and reinvestment in fewer management layers and fewer competing groups.
- Run all businesses on a clear, simple model of business and productivity metrics. This will be interesting and if it takes, it will mean that the culture will have changed dramatically.