Microsoft's Windows-and-devices group again records lower revenue

But declines in the 'More Personal Computing' division were less than the previous quarter, with Windows revenue down 8%

microsoft logo
Credit: Reuters/Pichi Chuang

Microsoft yesterday again reported a decline in revenue for the group responsible for Windows, the Surface line of 2-in-1s and notebooks, and smartphones, in 2015's fourth quarter. But the contraction was smaller than the period immediately prior.

Total revenue for the More Personal Computing (MPC) division -- a 2015 creation in another Microsoft reshuffling of both the company's org chart and how it reported earnings -- in the December quarter was $12.7 billion. That was down 5% from the same period in 2014, but off 2% if the stronger dollar was eliminated from the equation.

In the September quarter, MPC revenue was down 17% year-over-year (or -13% under "constant currency" calculations).

The group accounted for 53% of the company's total revenue of $23.8 billion, the most of any of the three segments. But its operating income -- the amount of profit after deducting operating expenses, which include not only cost of goods but also sales expenses, wages and depreciation -- was 16% of company revenue, again making it the least profitable unit by far.

Operating income in the December quarter was at a slightly lower percentage of revenue than in the September quarter, when the number was 17%.

As in previous quarters, most of MPC's problems could be traced to Microsoft's floundering smartphone business, which declined by $1.2 billion in revenue as the company continued a mid-2015 retrenchment from a more expansive portfolio after it wrote off most of the botched Nokia acquisition. Microsoft sold just 4.5 million Lumia smartphones, or 57% fewer, than in the same quarter the year before, and revenue from phones overall plummeted by $1.2 billion, a decline of 53%.

With those sales numbers -- Apple, in contrast, sold 5.7 million iPhones each week during its December quarter -- Microsoft's business is on the edge of, if not ending, then on an abyss of apathy.

Surface revenue, on the other hand, jumped $248 million, an increase of 22% over 2014's fourth quarter, to approximately $1.35 billion. That was a record for Microsoft's PC-tablet line.

Microsoft attributed the Surface revenue increase to the launch of the Surface Book and the fourth-generation Surface Pro 4, which debuted in late October, after the quarter's start date. And more money is in the offing, said CEO Satya Nadella. "We see more opportunity ahead with Surface Book coming soon to China, Japan, the UK, France, Germany and other markets in Europe and Asia," Nadella said in prepared remarks during a Thursday conference call with Wall Street.

What analysts no longer have, however, is a way to parse the margins of the Surface devices; Microsoft stopped providing that detail some time ago. Revenue might have been up, but it was impossible to verify Microsoft's assertion that hardware margins had climbed by virtue of the higher-priced Surface Book, a premium device that starts at $1,499.

Windows accounted for the largest slice of MPC's revenue -- $4.9 billion by Computerworld's estimate -- even though, like smartphones, the OS's money-making efforts were down from the same quarter in 2014. Microsoft said Windows licensing was off 8% overall, with sales to OEMs (original equipment manufacturers) down 5% as computer makers sold a dwindling number of new machines.

Those numbers were improved from a year prior, when Windows revenue was down by double digits.

Microsoft's chief financial officer boasted that the downturn in Windows revenue was smaller, percentage-wise, than the PC industry itself, which according to research firm IDC, fell by more than 10% in units shipped. "Our total OEM business declined 5% this quarter, outperforming the overall PC market," said Microsoft's Amy Hood in the earnings call yesterday.

The company did not divulge any new numbers for Windows 10 uptake: The executives stuck with the 200-million mark touted earlier this month and repeated the claim that the new OS was setting records. "I've never seen a Windows release in the enterprise with this level of accelerated deployment planned," Nadella said, echoing commentary this week by Gartner's Steve Kleynhans.

Hood also said that MPC revenue beat the company's internal projections, but didn't say by how much. She cited only the Surface as a contributor to the rosier-than-expected results. "Between all of those hardware products, as well as our gaming performance, another sort of hardware component in quarter, we did a little better than we had expected in our launches," Hood noted.

Surface revenue in millions q4 15 Data: Microsoft

Surface revenue set a record in 2015's December quarter -- $1.35 billion -- but Microsoft no longer provides data that lets outsiders calculate the profit margin of its hardware line. (.)

The march toward exascale computers
View Comments
Join the discussion
Be the first to comment on this article. Our Commenting Policies