Microsoft's struggling smartphone business has a silver lining

Microsoft reported its earnings on Thursday afternoon, posting a strong beat on both the top and bottom lines that sent its stock edging upwards.

Notably, Microsoft reported adjusted earnings per share of $US0.98 — a huge 38% margin over the $US0.71 that Wall Street was expecting.

Microsoft tells us the reason for that big difference comes from an unexpected source: With Microsoft’s smartphone business in the process of winding down, the company can claim tax write-offs that it couldn’t before. Under those circumstances, Microsoft is taking a $US1.8 billion tax gain that it hadn’t before. That, in turn, accounts for a full $US0.23 of its EPS as reported.

In the last quarter, Microsoft says its phone revenue was “immaterial,” with a decline of $US361 million from the same period in 2016. Last year, Microsoft laid off 1,850 people or more in its smartphone business as it looked to reconsider its place in the smartphone market.

Best estimates peg the market share of all of the various different Windows phone operating systems combined at under 1 per cent, too, meaning there’s not much chance for a turnaround. Still, rumours continue to swirl that Microsoft is working on a so-called “Surface Phone” that could lead to a resurgence.

Get the latest Microsoft stock price here.

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