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Microsoft Q3-FY14: 4.4M Office 365 Subscribers, 2M Xbox sold, $494M Surface revenue

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In the first quarter with Satya Nadella at the helm, Microsoft has reported a decline in its net quarterly profit year-on-year (YoY) to $5.66 billion, down from $6.06 billion profit in the same quarter last year.

The total revenues for the quarter also saw a minor decline to $20.4 billion from $20.49 billion in the same quarter last year, while the operating income declined to $6.97 billion for the quarter from $7.6 billion in the same quarter last year.


– Microsoft sold 2 million Xbox consoles during the quarter, of which 1.2 million were Xbox One units and the remaining 0.8 million were Xbox 360 units. In the previous quarter, Microsoft had sold 7.4 million Xbox console units, of which 3.9 million were Xbox One units, although it was a holiday quarter. The company is expected to launch Xbox One in India in September this year.

During the company’s earnings call, Microsoft CFO Amy Hood mentioned that users are spending nearly 5 hours per day on their console. She also mentioned that Xbox Live transactional revenues grew by 17% for the quarter, although she didn’t disclose any specific revenues.

– Office 365 Home now has 4.4 million subscribers, of which nearly 1 million subscribers were added in the last three months.

– Surface revenues grew by over 50% to $494 million. While there is no information on the number of units sold, Microsoft mentioned that it is witnessing an increasing mix of 2nd generation and pro devices. In comparison, Surface revenues were at $893 million in the previous, although note that it was a holiday quarter and the company had just launched Surface 2 tablet towards the end of the quarter before.

– Microsoft is closing the $7.2 billion sale of Nokia’s devices and services business later today (April 25) and is renaming this business as Microsoft Mobile. Post the acquisition, Nokia’s devices and services will be clubbed with Microsoft’s devices & consumer hardware business while the license sales and platform payments will be clubbed in devices & consumer licensing business.

– Bing U.S. search share grew to 18.6% from 18.2% in the previous quarter while search advertising revenue grew by 38% for the quarter.

– Office 365 revenue grew by over 100% and commercial seats nearly doubled.

– Microsoft has introduced more than 40 new features to Azure platform and Azure revenues grew by 150% during the quarter, although there is no word on any specific revenues.

– Microsoft’s productivity server offerings Lync, SharePoint, and Exchange collectively grew double-digits but no specific numbers were disclosed.

– More than 90% of enterprise desktops are now on Windows 7 or Windows 8.

Devices & Consumer Business

Revenue from Devices and Consumer Licensing business, which includes OEM revenues marginally increased by YoY to $4.38 billion for the quarter, from $4.35 billion in the same quarter last year. Windows OEM revenue grew 4% for the quarter, which was driven by 19% growth in Windows OEM Pro revenue. The Windows OEM non-Pro revenue however declined by 15% for the quarter.

The office consumer revenue increased by 15% for the quarter, partly due to higher sales in Japan ahead of a national tax increase.

Devices and Consumer Hardware business that includes Xbox One & Surface tablet saw a significant growth to $1.97 billion for the quarter, from $1.4 billion in the same quarter last year. Xbox platform revenues were up 45% for the quarter.

Microsoft’s Devices and Consumer Other business, which includes revenue from its search advertising, Office 365 Home, Windows Store, Xbox Live, and other smaller businesses, increased to $1.95 billion for the quarter, up from $1.66 billion in the same quarter last year.

Overall, the revenues for the devices and consumer segment increased by 12% YoY to $8.30 billion for the quarter. It represents 40.7% of Microsoft’s total revenues for the quarter.

Commercial Business

Commercial Licensing division that includes services such as Office Commercial, developer tools and several server side offerings, showed a modest 3% growth to $10.3 billion, up from $9.98 billion in the same quarter last year.

The office commercial revenue was up 6% while the Windows volume licensing revenue grew by 11% YoY. The server product revenue was up 10% and the SQL service revenues was up by more than 15%.

Commercial other revenues saw a significant 31% increase to $1.92 billion for the quarter, from $1.45 billion in the same quarter last year. Commercial cloud revenues grew by 101% for the quarter.

Overall, the revenues for the commercial segment increased by 7% YoY to $12.23 billion for the quarter. It represents around 60% of Microsoft’s revenues for the quarter.

Download: Press Release | Slides

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