Cloud surge, Surface sales buoy Microsoft’s quarterly results

The financial results for Microsoft's second fiscal quarter, which ended December 31, paint a mixed picture of the company's businesses. Overall revenue hit $26.5 billion, up 8% over the same period last year. However, net income declined 10.6% to a still-respectable $5.9 billion. Here are the relevant figures, which include $243 million in "integration and restructuring expenses" related to the Nokia acquisition and the job cuts announced in July.

  Q2'15 Q2'14 Change
Revenue $26.5 billion $24.5 billion up 8.0%
Gross margin $16.3 billion $16.2 billion up 0.8%
Operating income $7.8 billion $8.0 billion down 2.4%
Net income $5.9 billion $6.6 billion down 10.6%

The Devices and Consumer division contributed $12.9 billion in revenue, an 8% increase year-over-year. $1.1 billion of that came from sales of Surface devices and accessories, which rose 24%. That jump is largely attributed to the Surface Pro 3.

Revenue from OEM Windows licensing took a big hit, falling 13% for both Pro and non-Pro flavors. Microsoft blames the decline on a "[return] to pre-Windows XP end of support levels," discounts for academic customers, and "license growth from opening price point devices." Thanks to incentives, Windows is essentially free—or nearly free—on smaller tablets and some other low-end devices.

A lot of folks with entry-level Windows devices probably got a free year of Office 365, which explains why subscriptions increased 30% to 9.2 million. Office 365, Azure, and Dynamic CRM Online combined to fuel a 114% increase in commercial cloud revenue, bringing that business segment's "annualized revenue run rate" to $5.5 billion.

Comments closed
    • Ninjitsu
    • 6 years ago

    Seagate and Microsoft’s results have sent Intel’s stock tumbling, and AMD’s up, for some reason.

      • sschaem
      • 6 years ago

      Probably because AMD as little to no exposure in the server market anymore,
      so if that market collapsed AMD would see very little impact in revenue, but Intel and seagate would be devastated ?

      Well, and there is this lingering rumor of a buyout/merger with one of AMD Chinese partner.

    • End User
    • 6 years ago

    [url=http://techcrunch.com/2015/01/27/microsoft-closes-down-9-25-after-its-earnings-report-fails-to-impress-the-street/<]The market does not like failure.[/url<]

    • BoilerGamer
    • 6 years ago

    Future Surface Pro 4 owner here. Could use a Pro 3 right now but rather wait till my Tax return comes in and buy a Pro 4 with Broadwell-U and W10 in the fall.

      • StuG
      • 6 years ago

      Do they have a release date set for it, or do we just know Q3-4?

        • sweatshopking
        • 6 years ago

        probably summer, but no release date set, but that’s my speculation

    • danny e.
    • 6 years ago

    Very odd to have fiscal Q2 2015 end Dec 31, 2014. Q1 2015, sure. Q2, odd.

    Also, [quote<] Overall revenue hit $25.6 billion[/quote<] grid: [quote<]$26.5 billion[/quote<] Grid win.

    • blastdoor
    • 6 years ago

    So how many surface sales is that? Somewhere between 1 and 2 million?

    • superjawes
    • 6 years ago

    Can the cloud actually surge? You’d think it could only puff…

      • derFunkenstein
      • 6 years ago

      lightning strikes

    • smilingcrow
    • 6 years ago

    Just read this at ArsTechinca:

    “Under Windows 10? Those upgrade licenses are going away. The OEM will still pay Microsoft for a Windows license, but it will be just that: a Windows license, and not, say, a Windows 8.1 license. The license will entitle the user to continue to upgrade to new major versions for the lifetime of their machine.”

    [url<]http://arstechnica.com/business/2015/01/hardware-surprisingly-strong-windo[/url<] ws-weak-as-microsoft-posts-solid-q2/ Hopefully they offer the same for people that build their own systems.

      • Deanjo
      • 6 years ago

      [quote<]The license will entitle the user to continue to upgrade to new major versions for the lifetime of their machine.[/quote<] Define lifetime.

        • smilingcrow
        • 6 years ago

        This is talking about OEM licenses so until the PC dies I presume. In other words you could probably replace anything but the motherboard and replacing those outside of the warranty period is often not cost effective anyway even if available.

          • Deanjo
          • 6 years ago

          I’m not so sure about that. It could be like phones where they are supported up to where the manufacturer deems it is supported.

            • derFunkenstein
            • 6 years ago

            That’s what I assume the lifetime to be as well. And each manufacturer has a different idea of the supported lifetime on phones. Most Android manufacturers do 2 years of very late updates. Nokia/MS had initially stated 3 years for WP8 devices. All of those timeframes are OK on phones where so many people get new subsidized devices, but that’s far to short for PCs.

            • smilingcrow
            • 6 years ago

            The difference is with a phone you are often dependent on the carrier to supply an upgrade OTA whereas with a PC you may well be able to download Windows drivers from the component manufactures for a system that is no longer officially supported.

            So how would MS disable the upgrading of a 5 year old Dell to Windows 12?
            Maybe they would force the use of an update assistant that would determine eligibility!
            If they go down the free upgrade for lifetime route I think they wouldn’t want to get involved in policing it much but leave it to the end user to see if they can upgrade.
            So just provide an upgrade advisor and leave it to users to decide for themselves.

    • Shouefref
    • 6 years ago

    I’ve thumbed up SSK’s comment.
    Imagine that …

      • sweatshopking
      • 6 years ago

      WE SECRETLY LOVE EACH OTHER. YOU KNOW IT <3

    • Shouefref
    • 6 years ago

    It depends on how you look at the figures, of course. $5.9 billion net income is still huge.
    But I don’t think MS can win in the cloud from Google.
    If MS is going to concentrate on the cloud, they might wage a war they can’t win, throwing away the ground they already have conquered.
    They should stick more to there traditional business, and stop pestering their clienst with changes they don’t want.
    It’s sometimes small, but annoying. Like changing from vertically side-by-side orientated icons on the desktop top horizontally orientated icons, and then deciding to put icons for downloaded files at the left instead of at the end at the right of the screen.
    That are not huge changes in comparison with the killing of the Start menu and the traditional desktop, but it’s annoying too.
    What they don’t get, is that if you start to pester your clienst and to hinder their traditional way of working, the client thinks like: Okay, I’ll have to adapt to the competiton, but I have to adapt if I stay to my usual brand anyway. So, I could as well try something new.
    And that’s why MS starts loosing ground.

      • sweatshopking
      • 6 years ago

      Google isn’t the threat in the cloud, amazon is, and azure seems to be doing VERY well.

        • Zizy
        • 6 years ago

        Amazon > MS > Google. Google is threat to MS and MS threatens Amazon.
        I believe all 3 will be able to survive just fine, pie is big enough. But startups and major blunders could shake things.

        • nanoflower
        • 6 years ago

        Google and Microsoft compete in cloud services such as word processing. Amazon and Microsoft compete in cloud services such as Virtual Machines.

      • odizzido
      • 6 years ago

      I find this to be very true. MS has been really pushing stuff people just don’t want. I actually recommended a mac to someone for the first time because the windows option(s) were just terrible.

      With valve working on steamOS and MS possibly trying to push a subscription model for windows 10 things are starting to look pretty bad for MSs market share with gamers. May not seem too big of an issue, but a lot of people who play games recommend/buy PCs for people and once they start liking a different OS I think that’s going to be it for MS for everything but corporate.

        • sweatshopking
        • 6 years ago

        steamos is basically doa, ms isn’t pushing a subscription model. so, idk.

          • odizzido
          • 6 years ago

          I’ve not even looked at steamOS…..kinda waiting for it to stop deleting your stuff.

          As to MS not doing a subscription thing that would be nice. MS makes some good OSs for the most part so it would be nice to keep getting good options.

    • End User
    • 6 years ago

    Apple is getting close to triple the amount of revenue and profit.

      • sweatshopking
      • 6 years ago

      cool. now if only they could get the macbook sales higher than the wp sales as a % of global market share….

        • Deanjo
        • 6 years ago

        Lol, I still read “wp” as the abbrev for WordPerfect.

          • Concupiscence
          • 6 years ago

          Me too, and when DoS started floating around as an acronym for Denial of Service I started wondering if I was going senile. “Why would you leave ‘operating’ lowercase? Where am I? And where’s that French toast I ordered?”

        • DreadCthulhu
        • 6 years ago

        Not an Apple fan in the slightest (every time I am forced to use their products, I end up wishing their executives would get cancer) , but every Mac is a high margin item, while the bulk of Windows Phone sales have been at the low margin, budget end of the segment. That make a rather large fiscal difference.

          • derFunkenstein
          • 6 years ago

          [quote<]I end up wishing their executive would get cancer[/quote<] You are a horrible person.

            • blastdoor
            • 6 years ago

            agreed

            • Suspenders
            • 6 years ago

            hyperbole
            [hahy-pur-buh-lee]

            noun, Rhetoric
            1.
            obvious and intentional exaggeration.
            2.
            an extravagant statement or figure of speech not intended to be taken literally, as “to wait an eternity.”.

            Of course if he/she is serious…

          • sweatshopking
          • 6 years ago

          YES?

            • End User
            • 6 years ago

            Hell no.

            • sweatshopking
            • 6 years ago

            yes to the fiscal difference, not the cancer….

        • End User
        • 6 years ago

        He who quotes market share is lost.

        Average price of Windows phone is $45 according to asymco.

          • sweatshopking
          • 6 years ago

          AND THEY’RE RIGHT.

          WUT? YOU’VE QUOTED MARKET SHARE TO ME LIKE 10X ON THE WP SUBJECT.

            • End User
            • 6 years ago

            From the point of view that they have none.

            • sweatshopking
            • 6 years ago

            Sure. and it’s literally basically the same % as macbooks.

            • End User
            • 6 years ago

            With one key difference. Apple makes a sh1t ton of money on the 5 Macs they sell per quarter.

            • sweatshopking
            • 6 years ago

            microsoft makes money on wp too.
            we agree. both suck.

            • End User
            • 6 years ago

            Ya, Apple’s Mac business [url=http://techcrunch.com/2010/10/20/apple-mac-business/<]totally sucks[/url<].

            • blastdoor
            • 6 years ago

            It is kind of ironic/interesting/whatever that wp and mac have about the same share of the smartphone and personal computer markets, respectively.

            But more than anything else, I think it illustrates the limits of focusing on market share. Mac market share is coming from the top of the market (in terms of ASP). If WP was a similarly top-tier product, then these marketshare numbers really would be comparable. But, alas, it is not.

            The Surface Pro, however, actually is a top tier product. So if the Surface Pro ever reaches Mac-like marketshare for the tablet market, that really will be a nice accomplishment for Microsoft that is comparable to what Apple has achieved with the Mac. I suspect Apple takes the Surface Pro far more seriously as a competitor than it takes WP.

        • BoilerGamer
        • 6 years ago

        Margins >>>>> market share, the success of Apple is the proof of that.

      • kamikaziechameleon
      • 6 years ago

      while being what percent of the market? Crazy.

      • dragontamer5788
      • 6 years ago

      You do realize that the above are Microsoft’s [b<]quarterly[/b<] numbers, right? Apple's ~$60 Billion in revenue and $40 Billion in Gross Income is its [b<]yearly[/b<] number. Microsoft's yearly income was $87 Billion in 2014.

        • End User
        • 6 years ago

        I am referring to [b<]quarterly[/b<] numbers. Anywhere from $63B to $70B for Q1 2015 - to be announced later today after the markets closed.

          • blastdoor
          • 6 years ago

          It’s hard for people to wrap their heads around how big Apple has become. I see comments all the time by people who just can’t accept it. For example, I have to chuckle whenever somebody says that Apple can’t possibly do X because X costs billions of dollars. It’s like for all Apple haters, it’s forever 1999 (kind of like how for all Republicans, it’s forever 1979).

            • chuckula
            • 6 years ago

            Apple makes a lot of money (more in absolute terms than Microsoft) but there is a catch: Most of that “lot of money” comes from the most fickle segment in existence: personal electronics.

            You can’t find one of Microsoft’s units that has had the same nosedive in revenue that the iPad has experienced over the last year, and Microsoft has long-term revenue streams that Apple is just now trying to copy with what they hope will be long-term lockin of their consumer base in the walled garden.

            • blastdoor
            • 6 years ago

            The main benefit of vendor lock-in is that it can shield a company from short-term financial consequences associated with coming out with a bad product. Wall Street types find that very attractive, since they are focused on quarterly earnings.

            But that lock-in also shields management from the consequences of making bad decisions. And it breeds resentment in customers who don’t like being coerced into buying products they don’t like.

            Apple’s existence is not threatened by a bad product cycle, thanks to the massive horde of cash. But while the cash horde shields the company from going out of business, it does not shield management or the board from facing the consequences of bad products. And while bad products are always bad for a company’s reputation, customers aren’t going to become as resentful towards a company if they aren’t forced to buy products they don’t want. I speak from experience — I walked away from the Mac in 1999 feeling disappointed, but not resentful. I returned in 2006, leaving Microsoft feeling both disappointed and resentful.

            Given all this, I actually think Apple is the safer long term investment. They have the cash cushion to avoid going out of business due to short term volatility in product success, while that very volatility provides the immediate feedback to management to make course corrections and remain focused on making great products. All in all, I think Apple has the better business model. (unless you’re a Wall Street guy focused on the next quarter).

            • sweatshopking
            • 6 years ago

            Let’s be realistic, all of these monster companies are so huge, apple, google, microsoft, etc. that they control and force the markets and politics to what they desire. Capitalism is so broken.

          • dragontamer5788
          • 6 years ago

          Interesting. I didn’t realize that Apple has such a big Christmas season each year.

          Looking at Q4 results from various sites and your assertion, I came to the wrong conclusion. I didn’t think you were talking about results that weren’t even posted yet.

            • blastdoor
            • 6 years ago

            The fourth calendar quarter has become very big for Apple, both because of the holidays and the timing of new iPhone/iPad introductions.

            But this year is looking to be particularly big. Sales of the iPhones 6 and 6+ appear to be very strong. People are guessing 30% to 40% higher than the same quarter in the previous year.

            • End User
            • 6 years ago

            Almost $75 Billion!

            [url<]http://9to5mac.com/2015/01/27/apple-earnings-fy15-q1/[/url<]

            • sweatshopking
            • 6 years ago

            NOT ENOUGH EXCLAMATION POINTS. YOU’RE NOT ADEQUATELY SHOWING HOW EXCITED YOU ARE AS A FANCHILD. COME ON, EU, THIS IS MORE IMPORTANT TO YOU THAN JUST 1!

        • sschaem
        • 6 years ago

        The numbers are public, check them out ? (ex: fiscal 2014 apple brought in 182 billion)

        Microsoft nowdays bring in about half the revenue and net income compared to apple.

        The expectation for the oct-dec month, Apple will now more then double its revenue & net income compare to MS.

      • sschaem
      • 6 years ago

      Dead on with your 3x. 18 billion net income. VS 5.9 for MS
      The cash flow per share and sale numbers are unreal…

    • sweatshopking
    • 6 years ago

    HEY GUIZE. SOMEBODY ELSE BOUGHT A SURFACE! NOW THERE ARE FIVE OF US!

      • End User
      • 6 years ago

      I can’t hear you over the fan noise.

        • rxc6
        • 6 years ago

        Like you would now that. You don’t touch anything that doesn’t come from the holy bitten fruit.

          • End User
          • 6 years ago

          ?

          I built and run the following:

          – Dual X5650 ESXi server
          – i7-920 muck about rig (currently running Ubuntu 14.10 and Windows 8.1)
          – 3770K SLI equiped gaming rig running Windows 8.1

          I maintain Linux servers at work.

      • Deanjo
      • 6 years ago

      THAT’S BECAUSE THEY FOUND A USE FOR THEM!

      [url<]https://twitter.com/adamUCF/status/529872977115246592/photo/1[/url<] BEST IPAD STAND EVER!

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