Today was quarterly earnings report day for Microsoft and it had some good news to share with investors. It wasn’t knock-your-socks-off-phenomenal news, but it was a testament to the direction and leadership of CEO Satya Nadella, and it was good enough to keep Wall Street happy.
Let’s start with the highlights. Microsoft posted revenue of $20.4 billion for the first quarter of the 2016 fiscal year—down 12 percent from the same period last year. Operating income was down one percent to $5.8 billion. Net income, on the other hand, was up two percent to $4.6 billion, and earnings per share were $0.57—a six percent increase.
Microsoft has been through a major realignment recently, and the earnings reflect the new organizational structure. There are just three major segments to Microsoft’s business now: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing.
“We are making strong progress across each of our three ambitions by delivering innovation people love,” said Satya Nadella, chief executive officer at Microsoft in a statement in the earnings press release. “Customer excitement for new devices, Windows 10, Office 365 and Azure is increasing as we bring together the best Microsoft experiences to empower people to achieve more.”
Microsoft Office is part of the Productivity and Business Processes segment. Microsoft stated that Office consumer revenue declined 13 percent—nine percent being a function of the strong dollar in relation to other global currencies. Office 365 continues to shine, though. Microsoft added about three million new Office 365 subscriptions during the quarter—bringing the total to 18.2 million.
The More Personal Computing segment declined 17 percent (13 percent thanks to the strong dollar). That isn’t great news. Microsoft’s phone revenue plummeted 54 percent—a reflection, Microsoft stated, of its shift in mobile strategy. The silver lining for Microsoft’s More Personal Computing unit, however, is that Windows OEM revenue out-performed the overall PC market.
Intelligent Cloud is where things seem to be firing on all cylinders for Microsoft. The reporting segment had an increase in revenue of eight percent—14 percent if you consider the strength of the dollar. According to Microsoft, that strong performance is the result of:
- Server products and cloud services revenue grew 13 percent in constant currency, with revenue from premium products and services growing double-digits
- Azure revenue and compute usage more than doubled year-over-year
- Enterprise Mobility customers more than doubled year-over-year to over 20,000, and the installed base grew nearly 6x year-over-year
The next quarter will be interesting to watch. It will be the first full quarter with Windows 10 on the market, and it will see the official launch of the Surface Book, Surface Pro 4, and new Lumia smartphones. It will also include the highly-anticipated launch of Halo 5: Guardians and the holiday shopping season.
If you’d like to watch the webcast of the Microsoft executives talking about the performance for FY16 Q1 you can click here to stream the recording.