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Device and Consumer Revenues Decline for Microsoft

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Business segments

In 4Q15, revenues in the devices and consumer segment for Microsoft (MSFT) declined by 13% to $8.7 billion. Windows OEM (Original Equipment Manufacturer) decreased 22% YoY (year-over-year) as they were impacted by PC market declines.

Revenues of tech firms in the semiconductor space such as Intel (INTC) and Micron (MU) have been negatively impacted as well due to declining global PC sales.

Driven by Surface Pro 3, the launch of Surface 3 revenues grew by a stupendous 117% to $888 million in 4Q14. While Xbox revenues increased 27% YoY due to strong growth in consoles and first-person games, search advertising revenues grew 21% in 4Q15. Office 365 subscribers increased to 15.2 million in 4Q15 from approximately 12.5 million in 3Q15.

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Driven by Office 365, Azure and Dynamics CRM online, Commercial Cloud revenue increased 88% and as mentioned in the previous part, this segment now has an annualized run rate in excess of $8 billion. Stable annuity performance that offset declines in transactional revenue saw server products and services revenue increased by 4% YoY in 4Q15.

“In our commercial business we continue to transform the product mix to annuity cloud solutions and now have 75,000 partners transacting in our cloud,” said Kevin Turner, chief operating officer at Microsoft. “We are also expanding the opportunity for more partners to sell Surface, and in the coming months will go from over 150 to more than 4,500 resellers globally.”

Fiscal 2015

For the fiscal 2015, Microsoft’s revenue, gross margin, operating income, and diluted EPS (earnings per share) were $93.6 billion, $60.5 billion, $18.2 billion, and $1.48 per share, respectively. Excluding impacts of restricting as well as impairment charges operating income for fiscal 2015 and EPS would have been $28.2 billion and $2.63 billion, respectively.

To gain exposure to Microsoft (MSFT), you can invest in the First Trust ISE Cloud Computing Index ETF (SKYY) and the iShares North American Tech-Software ETF (IGV). The stock accounts for 2.31% and 9.15% of the portfolios, respectively.

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