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Phone Business Weighed on Microsoft’s PC Segment in 1Q16

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Aug. 18 2020, Updated 5:17 a.m. ET

Microsoft’s “More Personal Computing” reported fall in revenues

So far in the series, we discussed two of Microsoft’s (MSFT) reporting segments’ performance in fiscal 1Q16. Let’s discuss the company’s “More Personal Computing” or MPC segment’s performance in 1Q16.

In fiscal 1Q16, this segment generated revenue of $9.4 billion, a fall of 17% on a YoY (year-over-year) basis, as the chart below shows. In constant currency terms, this fall was 13%.

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A closer look

Microsoft’s newly formed “More Personal Computing” operating segment is comprised of Windows operating system (or OS) licensing, hardware and devices including Surface, Lumia, HoloLens, and Windows phones, and gaming products like Xbox consoles. It also includes Bing, Microsoft’s search engine.

The double-digit fall in Microsoft’s MPC segment was majorly due to its devices business that fell 45% in 1Q16. The fall in device revenue was due to a 54% fall in the phone business. As Microsoft stated, this was in accordance with its “updated strategy.” In 4Q15, Microsoft had to incur $8.4 billion in the write-down of its Nokia acquisition, made in 2014.

Sluggishness in the PC market impacted Windows OEM revenues

In fiscal 1Q16, though Windows OEM (original equipment manufacturers) Pro- and non-Pro revenue fell by 7% and 4%, respectively, Windows licensing volume rose by 4% in constant currency terms. As Windows OEM Pro derives its revenue from the business PC market, this fall can be attributed to the continued weakness in the PC market.

Gartner reported that in 3Q15, global PC shipments stood at 73.7 million, a fall of 7.7% on a year-over-year basis. The top two PC manufacturers, China -based (MCHI) Lenovo (LNVGY) and HP (HPQ), both reported a fall in PC shipments in 3Q15.

The SPDR S&P 500 ETF (SPY) invests ~18% of its holdings in the technology sector.

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