Microsoft financials: strong quarter especially in cloud services. We have a very different way to think about Windows says Nadella

Microsoft has released its financial results for the first quarter of 2014. The year on year segment figures look like this:

Quarter ending March 31st 2014 vs quarter ending March 31st 2013, $millions

Segment

Revenue

Change

Gross margin

Change

Devices and Consumer Licensing

4382

+30

3906

-23

Devices and Consumer Hardware

1973

+571

258

-135

Devices and Consumer Other

1950

+294

541

+111

Commercial Licensing

10323

+344

9430

+345

Commercial Other

1902

+453

475

+211

The “Gross margin” figures above do not tell us much other than for hardware, since Microsoft no longer allocates its research and development costs against specific segments.

Overall revenue is slightly down year on year but only because of a $1778 million decline in the “corporate and other” segment. This means it was a better quarter than the overall revenue suggests.

So what is notable? Windows OEM revenue is up, but only thanks to the business market, and partly thanks to upgrades driven by the end of support for Windows XP. Consumer OEM Windows is down by 15%.

Xbox revenue is up 45% thanks to the launch of Xbox One (and I have a hunch we will see less positive figures in future since Sony’s PS4 seems to be winning the console wars).

Surface (Microsoft’s own-brand tablet) revenue is up by over 50% year on year, to $494 million. It is a significant business, though apparently not a profitable one. Cost of sales was $539 million, says Microsoft in its notes.

Windows volume licensing, which accounts for most enterprise usage, is up 11%, also no doubt influenced by the end of XP support. SQL Server revenue is up by 15%, though in relation to server products Microsoft notes the impact of “the transition of customers to Cloud Services.”

The big winner is cloud services. Microsoft says:

  • Office 365 revenue grew more than 100%
  • Microsoft Azure revenue grew more than 150%
  • Cloud services revenue grew $367 million or 101%

These sums are a little puzzling. If growth was 101% overall, and Office 365 grew by more than 100%, where is the Microsoft Azure growth hiding, or was it from a very small base?

Note that consumer Office 365 is accounted for separately, it seems, as part of “Devices and Consumer other”. There are now 4.4 million Office 365 Home subscribers, growing by around 1 million in this quarter.

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