Microsoft: The 'XP effect' is over

Comedown from XP-fuelled refresh cycle and Nokia charge hits Microsoft in Q2

The end of a PC refresh boom fuelled by the end of Windows XP has hit Microsoft in its second quarter, during which it also had to cough up $243m (£161.14m) in costs relating to its Nokia buy.

For the three months to 31 December, net income at the software giant fell 10.6 per cent annually to $5.9bn on sales which jumped eight per cent to $26.5bn over the same period.

The results include a $243m charge for integration and restricting expenses relating to its Nokia buy, it said.

In its Commercial division, sales grew five per cent year on year to $13.3bn thanks to booming demand for Office 365, Azure and Dynamics CRM Online. Server products and services sales were up nine per cent annually, but the comedown from the XP end-of-life bonanza last year was felt across the division.

Last year Microsoft ended support for the 13-year-old operating system which prompted refreshes among many of its customers. But a year later, things are back to normal, Microsoft said.

Chief executive Satya Nadella said the XP effect was a "one-time benefit" but has now "tailed off." On a conference call transcribed by Seeking Alpha, Microsoft's chief financial officer Amy Hood added:

"As we expected, our year-over-year growth rates were impacted by the prior-year benefits that we realised in our OEMs and office transactional businesses following the Windows XP end-of-support refresh cycle.

"Last year we ended support for Windows XP [and] that simulated a PC refresh cycle – in particular in developed markets and with business customers. Business PCs have returned to the levels we saw prior to FY14."

Nadella (pictured) has been CEO at Microsoft for about a year now, and said he was pleased with the company's progress.

"I am encouraged by the progress we are making in our transformation to become the productivity and platform company within a mobile mobile-first, cloud-first world," he said. "I'm proud of how our teams are stepping up to both change and execute to make this transformation happen.

"I'm confident of the decisions and choices we're making to drive our business and products forward to serve our customers and partners in the future."