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Xbox One, holiday sales drive Microsoft to record revenue

Mark Hachman | Jan. 24, 2014
Strong holiday revenue drove Microsoft to easily outpace Wall Street analyst estimates, although Windows revenue shrank due to a contracting PC market.

Strong holiday revenue drove Microsoft to easily outpace Wall Street analyst estimates, although Windows revenue shrank due to a contracting PC market.

Microsoft reported net income of $6.56 billion, or 78 cents per share, on revenue of $24.5 billion for the second fiscal quarter of 2014. Microsoft's net income grew 2.8 percent from a year ago, while revenue increased 14.3 percent during the same period. Analysts polled by Yahoo Finance expected Microsoft to report earnings of 68 cents per share on revenue of $23..4 billion.

"Our Commercial segment continues to outpace the overall market, and our Devices and Consumer segment had a great holiday quarter," said Steve Ballmer, chief executive officer at Microsoft, in what could be his last earnings report for the company."The investments we are making in devices and services that deliver high-value experiences to our customers, and the work we are doing with our partners, are driving strong results and positioning us well for long-term growth."

"As I look back on the quarter, I'm pleased with the results," said Amy Hood, Microsoft's chief financial officer, during a conference call Thursday afternoon with analysts. Microsoft's results exceeded the company's own revenue expectations, she said. 

Xbox One FTW
From a business standpoint, the winner was Microsoft's Devices and Consumer Hardware business, riding the Xbox One launch to $4.7 billion of revenue, a whopping 68.4 percent increase in revenue from the $2.8 billion Microsoft reported a year ago. Microsoft said it sold 7.4 million Xbox console units into the retail channel, including 3.9 million Xbox One consoles and 3.5 million Xbox 360 consoles.

The other big winner? The Surface tablet, which more than doubled its revenue from $400 million a quarter ago to $893 million in sales for the December quarter. Units and revenue both more than doubled during the quarter, Hood said.

However, the cost of the Surface revenue  was $932 million, meaning that Microsoft is still losing money on the tablet. And the $1.9 billion overall increase in the D&C Hardware business was offset by a $2.3 billion increase in cost of revenue. Nevertheless, Hood was positive about the division's future, and specifically the Surface.

"We feel good about the success we have made over the last two quarters," and look forward to further success, she said.

Even Bing saw ad sales climb 34 percent, as Microsoft's search share now stands at 18.2 percent.

Other Microsoft divisions didn't fare nearly as well. Devices and Consumer Licensing, which includes Windows OEM revenue, dipped slightly to $5.38 billion. Windows OEM revenue dipped 3 percent. Windows OEM Pro revenue, Microsoft said, increased 12 percent, although non-Pro revenue decreased by 20 percent. Microsoft blamed a drop in the PC market for the shortfall, and did not immediately point to any signs of recovery, as Intel and AMD did.


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