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Windows Phone revenues decline 46% in Q1-FY15 due to dip in licensing revenues

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Microsoft has reported a net profit of $4.5 billion for the quarter ended September 30, 2014, a 13.5% decline from $5.2 billion profit in the same quarter last year.

The total revenues for the quarter however grew by 24.5% to $23.2 billion from $18.5 billion in the same quarter last year. The operating income declined to $5.8 billion for the quarter from $6.3 billion in the same quarter last year.

However, it’s worth nothing that this quarter results includes a $1.14 billion of restructuring & integration expense related to the company’s restructuring plan announced in July 2014 and the ongoing integration of the Nokia Devices and Services business. These expenses resulted in a dip in the company’s operating income for this quarter.

Highlights

– Microsoft sold 2.4 million Xbox consoles in this quarter, though it hasn’t provided a break-up of Xbox One and Xbox 360. In the previous quarter, Microsoft had sold 1.1 million Xbox console units. During this quarter the Xbox One was launched in 28 new markets, including India. The higher console sales also led to a 58% increase in Xbox platform revenues.

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During the quarter, Microsoft signed a partnership with Amazon India to exclusively offer its entire range of its Interactive Entertainment Business (IEB) products. This includes Xbox One, Xbox 360, Kinect, Xbox Live, Xbox Accessories, and all Microsoft-published Xbox game titles.

– Office 365 Home and Personal now has over 7 million subscribers, of which more than 1.4 million subscribers were added in this quarter.

–  Microsoft sold 9.3 million Lumia Smartphones during the quarter, however the Windows Phone revenue declined by 46% due to lower IP licensing revenues that was primarily because of higher mix of low royalty devices.

Microsoft’s Phone Hardware revenue was more than $2.6 billion for the quarter, up from $1.98 billion in the previous quarter. Note that the Phone Hardware business wasn’t part of Microsoft’s revenues in the corresponding quarter last year. Microsoft mentioned that

– Surface revenue grew by 127% year-on-year (YoY) to $908 million. While Microsoft hasn’t revealed information on the number of units sold, it mentioned that the revenue growth was primarily driven by the Surface Pro 3, that was released towards the end of the previous quarter. Surface revenues were at $409 million in the previous quarter.

– Bing U.S. search share grew by 140 basis points to 19.4% while search advertising revenue grew by 23% for the quarter, due to higher search volume and higher revenue per search.

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– SQL Server, System Center and Windows Server posted double-digit growths, resulting in a 13% increase in revenue for Microsoft’s server products and services business.

– Office Commercial products and services revenue grew by 5% in this quarter, due to customers transitioning to Office 365.

– Microsoft’s commercial cloud revenue grew 128% driven mainly by Office 365, Azure and Dynamics CRM.

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

Devices & Consumer Business

Revenue from Microsoft’s Devices and Consumer Licensing business, that includes OEM revenues declined by 8.72% YoY to $4.1 billion for the quarter, from $4.5 billion in the same quarter last year. Windows OEM revenues dipped by 2% for the quarter, due to a 4% decline in Windows OEM non-Pro revenue and a 1% decline in Windows OEM Pro revenue.

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The office consumer revenue dipped by 5% for the quarter, due to consumers transitioning to Office 365 Home & Personal versions.

Computing Gaming Hardware business that includes Xbox One and Surface tablet saw a significant 75% growth to $2.45 billion for the quarter, from $1.4 billion in the corresponding quarter last year.

Microsoft’s Devices and Consumer other business, that includes revenue from its search advertising, Office 365 Home, Windows Store, Xbox Live, and other smaller businesses, saw a 16.1% growth to $1.80 billion for the quarter, from $1.55 billion in the same quarter last year.

Overall, the revenue for the devices and consumer segment increased by 47.2% YoY to $10.96 billion for the quarter. The segment accounted for 47.2% 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, posted a 2.7% growth to $9.87 billion, from $9.61 billion in the same quarter last year.

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Commercial other revenues saw a significant 50% increase to $2.40 billion for the quarter, from $1.60 billion in the same quarter last year.

Overall, the revenues for the commercial segment increased by 9.6% YoY to $12.28 billion for the quarter. The segment represented around 53% of Microsoft’s revenues for the quarter.

Download: Press Release | Financials | Slides

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