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

Gregg Keizer | Feb. 1, 2016
But declines in the 'More Personal Computing' division were less than the previous quarter, with Windows revenue down 8%

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Credit: REUTERS/Pichi Chuang

Microsoft on Thursday 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.


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