Microsoft Sees Growth in Surface as Windows Phone Continues to Fall

Shaky Windows OEM and phone sales aside, the unit did log $9.5 billion in sales, the largest amount of sales logged for a specific unit, even if the sales growth was tiny (1%).

During the fiscal 2016 third quarter, the company's executives said that the intelligent cloud segment garnered an increase of 3.3% to $6.1 billion in revenue compared to the year ago period.

Cloud strength was the big positive in the earnings with revenue from office commercial as well as cloud services growing 7% while, consumer office grew 6% helping Microsoft reach 22.2 million office 365 subscriptions.

In all, the cloud continues to be the highlight of Microsoft's figures, though the lack of specific detail will no doubt continue to frustrate Steve Ballmer. We also expect growing contributions from Microsoft's Azure cloud platform to offset weaknesses in other businesses.

The company in part blamed a higher-than-expected tax rate for the lower net income. Later on, he summed up Microsoft's message: "In this world, what matters most is the mobility of a person's experience, not any one single device", he said. Not to be outdone by Office, Dynamics CRM Online has seen its seats more than double year-over-year, and 80% of new CRM customers are choosing the cloud version. Without the currency impact, revenue for the company was $22.1 billion (up 5%), earnings $0.62 (up 3%), operating income $6.8 billion (up 10%), and net income $5 billion (up 6%), but failed to do so. But if investors begin to get cold feet, you might see Microsoft push Windows 10 more aggressively to keep its numbers up.

The PC is the most frequently used device to access Microsoft services, Verto found, with 195.6 million monthly users. Microsoft attributed the outperformance to consumers opting for higher-cost, premium PCs.

That's the fiscal year after Microsoft's current fiscal year. Bing powers Microsoft's digital personal assistant, Cortana, which is bundled directly into the Windows 10 taskbar.

For the fiscal 2016 third quarter, officials said that Microsoft's commercial cloud run rate hit $10 billion annually. As a tidbit, they said that 35% of search revenue in the month of March was on Windows 10 devices. If that fails, then a third-party Windows 10 PC will suffice.

E5 refers to Microsoft's Office 365 Enterprise E5, the company's new corporate plan for Office 365 that increased both the capabilities and the price of the enterprise version.

Productivity and Business Processes revenue was $6.5 billion, up 1 percent year on year, with operating income of $3.0 billion, down 7 percent.

Sales of Microsoft's hardware contracted, with its device revenue falling 9% on a constant currency basis.

The company also reported a 61 per cent gain in revenue for Surface, the company's branded tablet system, fueled by the introduction of Surface Pro 4 and Surface Book.

Xbox live monthly active users grew 26% year-over-year to 46 million.

The markets have taken note of these disappointing results though, and the company's stock took a dive after earnings were posted.

Sam Mattera has no position in any stocks mentioned.

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Source: Microsoft Sees Growth in Surface as Windows Phone Continues to Fall