Microsoft profits fall despite consumer, business line sales increases

Microsoft earnings Nadella Bing Office365 Xbox computers
Profits slide despite healthy overall lines of business

Microsoft's Q3 2014 revenue remained flat at $20.4 billion (about £12.1b, AU$22b), compared with $20.49 billion (about £12.4b, AU$22.5b), in revenue during the same quarter last year. Operating income during the quarter decreased 9% to $6.9 billion (about £4.1b, AU$7.45b), during Q3, despite a decrease in operating expenses of $500 million (about £297m, AU$540m).

Microsoft's net income during Q3 2014 decreased 8% from $6.1 billion (about £3.6b, AU$6.6b) to $5.6 billion (about £3.3b, AU$6.05b), compared with last year.

The declines were partly the result of a $1.66 billion (about £9.8b, AU$17.9b) lift from deferred revenue in the comparable quarter last year, according to The New York Times. The deferred revenue was related to promotional offers Microsoft extended to customers buying new versions of Windows, Office and other products. Without that money, Microsoft's revenue grew 8% and net income grew 5%.

"This quarter's results demonstrate the strength of our business, as well as the opportunities we see in a mobile-first, cloud-first world," said Satya Nadella, in his first earnings statement as Microsoft CEO.

"The past two and a half months have been a period of significant change. In the months ahead we will be focused on two things: rock solid execution and moving the company forward," he added during an investors call.

Consumer products

Microsoft sold in 2 million Xbox console units, including 1.2 million Xbox One consoles, during the quarter. Surface revenue increased more than 50% during the quarter to approximately $500 million (about £297m, AU$540m).

Bing US search share grew to 18.6% of the market, while search advertising revenue grew 38%. The company's devices and consumer revenue increased 12% to $8.3 billion (about £4.9b, AU$8.9b) overall, compared with Q3 last year, due in large part to Windows OEM revenue, which increased 4%.

Office 365 Home reached 4.4 million subscribers during Q3, an increase of nearly 1 million subscribers from Q2.


Microsoft's business-to-business revenue grew 7% to $12.23 billion (about £7.2b, AU$13.3b) during the quarter, with Office 365 revenue doubling compared with Q2. Azure revenue increased 150% while Windows volume licensing revenue increased 11%.

"Our SQL Server business grew double-digits again this quarter, and with the announcements of SQL 2014 and Power BI for Office 365, we offer a unique, comprehensive, end-to-end data and analytics solution," said Kevin Turner, COO at Microsoft.

Microsoft expects to close the acquisition of the Nokia Devices and Services business on April 25, the company said in its earnings statement.

Recent news

Last week, Microsoft made Office 365 available for $69.99 per year (about £41, AU$74) and previewed an application that offers users in-depth analytics and interactive capabilities for PowerPoint. The company also revealed three services designed to ease data capture, storage and usage: the SQL Server 2014, Microsoft Azure Intelligent Systems Service and Analytics Platform Systems. Plans for a $1.1 billion (about £65m, AU$1.18b) Microsoft data center in Iowa went public.

In March, the company introduced Microsoft Office for iPad and Microsoft's new Enterprise Mobility Suite, which includes a series of tools designed to make it easier for IT departments to manage mobile devices and protect sensitive data.

In February, Nadella was named the third CEO of Microsoft, succeeding Steve Ballmer and Bill Gates.