Microsoft's phone business is dying, but everything else is booming

Straight from the earnings report

We all knew Microsoft was going to report a rough fiscal 2015 after recently laying off 7,500 employees and writing off more than $7.6 billion due to its failed Nokia investment. But that doesn't mean they're sobbing in Redmond, Washington.

In fact, Microsoft announced that its Surface business grew 117% to $888 million in sales during 2015, thanks in large part to the Surface Pro 3 and Surface 3 hybrid laptops. Microsoft's Office 365 business was also booming this year, up 3% as the company introduced an additional 15 million users to the productivity suite.

Even the company's oft-ridiculed search advertising business, Bing, increased revenue 21% during the fiscal year and now has a 20% market share in the US, trailing the obvious likes of Google for possession of first place.

Gearing up for 2016

All of this good news comes a little more than a week away from Microsoft's grand unveiling of the Windows 10 operating system.

Windows 10, which has received largely positive reviews, will replace the critically lambasted Windows 8, and should improve Microsoft's hardware and software sales with consumers and businesses.

As will new products like the Hololens and Surface Hub, which should help Microsoft gain an even deeper foothold for entertainment and business users, respectively.

However, Windows Phones fanatics will probably continue to lament their allegiance, even into fiscal 2016. Microsoft announced that phone hardware revenue decreased 38% to $748 million in 2015.

Although Microsoft is expected to launch Windows 10 Mobile in September, it's unlikely the operating system will help dig the company out of such a massive hole in terms of public perception and consumer adoption.

The cloud business

Microsoft's commercial cloud revenue increased 88% to more than $8 billion during the fiscal year. This business includes Office, Dynamics CRM and Azure.

This is a huge coup for CEO Satya Nadella whose three main points of focus have been the Internet of Things, Mobility and Cloud, since he took over the company in February of last year.

Even though Microsoft is making a big push for the cloud, it isn't abandoning businesses with on-premise data centers. "We fundamentally think of our servers as the extension of the cloud," Nadella said in a call with analysts. "I even describe it architecturally as the edge of our cloud."

Nadella said that server revenue rose 4%.

The big picture

Overall, Microsoft's revenue decreased 5% this year to $22.08 billion, compared with $23.382 billion in fiscal 2014.

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