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Microsoft Pri0

Welcome to Microsoft Pri0: That's Microspeak for top priority, and that's the news and observations you'll find here from Seattle Times technology reporter Matt Day.

January 26, 2015 at 6:06 PM

Microsoft’s earnings: Looking under the hood

Microsoft’s most recent quarter was a good news, bad news affair.

The company’s business-focused cloud-computing unit continued its pattern of double-digit sales growth, weighing in as a $5.5-billion-a-year business. But Microsoft’s biggest moneymaker — its commercial licensing group, which sells businesses Windows, server products, and Office — stumbled a bit. One-time charges, from employee severance bills to a tax adjustment from the IRS to the pain of a stronger dollar, wiped out a few hundred million dollars in profit.

Our big-picture story on the 11% drop in Microsoft profit during the three months ended in December lives here. For a geekier take on how Microsoft’s two main business units fared, read on.

Devices & Consumer

The segment reported revenue of $12.8 billion, up 8 percent, due to the inclusion of phone sales after Microsoft bought Nokia’s handset business.

  • Licensing (sales from Windows device manufacturers, consumer Windows, Windows Phone, and Office): Revenue fell 25 percent to $4.1 billion on the loss of Nokia as a customer after the acquisition, as well as a drop-off in sales of Windows and Office as the wave of consumers upgrading from Windows XP petered out.
  • Computing and gaming hardware (Surface, Xbox and Xbox live-subscriptions): Sales of $3.9 billion, down 11 percent as Xbox sales volumes fell. Microsoft sold 6.6 million of the consoles, down from 7.4 million a year earlier. Surface revenue grew 24 percent, topping $1 billion. That’s a significant landmark for the three-year old Surface program, but without specific figures like sales volume or the program’s profitability its significance is muddled.
  • Phone hardware: Sales of $2.2 billion. Microsoft didn’t own the business a year ago, so there’s no prior-year figure. But during the previous quarter, sales were $2.6 billion. Smartphone sales came in at 10.5 million, up 13% from the prior quarter. Sales of the less advanced phones Nokia built its reputation on declined 7%, to 39.7 million.
  • Other (Bing, MSN, Office 365, retail stores, and Windows store transactions): Revenue rose 24 percent, to $2.5 billion, on higher video game sales and online advertising. The tally of users of Office 365’s home edition rose to 9.2 million, from 7 million the prior quarter. Video game sales rose 79% on the inclusion of Minecraft maker Mojang following that acquisition.

Commercial

Reported revenue of $13.2 billion, up 5% on sales of cloud services and servers to businesses.

  • Licensing (Windows enterprise and server, SQL Server, Office for businesses, Visual Studio, Dynamics, Skype): Revenue of $10.6 billion, down 2 percent on a drop in Office sales and broad weakness in Japan. The Office sales plunge was caused by a couple factors, Microsoft said. First, the same XP upgrade hangover ailing the consumer business. Second, Microsoft’s success in selling cloud based versions of Office is cannibalizing sales through the old, ultra-profitable channel. Chief financial officer Amy Hood said that of the businesses whose renewed licenses of Office in the last three months of 2014, fully 45% opted for the cheaper (initially) subscription option of Office 365.
  • Other (enterprise support services, cloud services including Office 365 for businesses, Azure, Dynamics online): Revenue of $2.5 billion, up 46 percent on increased subscription to commercial Office 365 and the Azure cloud platform.

Comments | More in Financial | Topics: earnings, microsoft, office

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