Microsoft's Q2 strong: Surface revenue hits $893 million

Summary:Microsoft has had out-of-stock issues with the two new Surface devices and demand appeared to be strong.

Microsoft's fiscal second quarter results were better-than-expected and the company provided a more details about Surface sales, which came in at $893 million, double from the first quarter.

The results, largely powered by Xbox sales and strong enterprise sales, topped Wall Street expectations. The company reported second quarter earnings of $6.56 billion, or 78 cents a share, on revenue of $24.52 billion. Non-GAAP earnings for the second quarter excluding various revenue deferrals were 81 cents a share.

Wall Street was looking for earnings of 68 cents a share on revenue of $24.68 billion.

Also:  Microsoft Office 365 Home Premium: 3.5 million subscribers

Microsoft has had out-of-stock issues with the two new Surface devices and demand appeared to be strong. Devices and consumer revenue was up 13 percent in the second quarter compared to a year ago. Microsoft noted that its overall cost of revenue surged $2.6 billion, or 46 percent, due to "to higher volumes of Xbox and Surface sold, as well as higher datacenter expenses."

In Microsoft's quarterly filing with the SEC, the company noted that cost of revenue for the Surface was $932 million, pointing to a $39 million shortfall. The specific passage is:

Cost of revenue increased during the three months ended December 31, 2013, primarily due to a $1.6 billion increase in Xbox Platform cost of revenue. Surface cost of revenue was $932 million. Datacenter costs increased $145 million or 37%, reflecting investment in online operations infrastructure.

As for operating income by unit, Microsoft's devices and consumer unit delivered second quarter operating income of $2.64 billion, down from $3.55 billion a year ago, on revenue of $11.9 billion, up from $10.5 billion a year ago.

The commercial division reported second quarter operating income of $6.3 billion, up from $5.7 billion a year ago, on revenue of $12.67 billion, up from $11.52 billion a year ago.

Microsoft said it spent $2.75 billion on research and development in the second quarter, up 9 percent from a year ago. For the six months ended Dec. 31, research and development spending was $5.5 billion, up 11 percent from a year ago.

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When you break down the results, you come away with the following:

  • Commercial revenue continues to carry the company as second quarter sales were $12.67 billion, up 10 percent from a year ago. Products like System Center, SQL Server and Office 365 continue to sell well.
  • Windows revenue fell 3 percent as enterprise licensing offset weak consumer sales.
  • Microsoft moved 7.4 million Xbox units---3.9 million Xbox One consoles and 3.5 million Xbox 360 units.
  • Office consumer revenue fell 16 percent in the second quarter, but customers transitioned to Office 365 in the cloud.
  • Microsoft has 3.5 million Office 365 Home Premium subscribers.
  • Search advertising revenue was up 34 percent in the second quarter from a year ago.
  • Microsoft is working the enterprise cloud subscriptions as Office 365, Azure and Dynamics CRM seats all posted growth of 100 percent or more in the second quarter.


Topics: Enterprise Software, Hardware, Microsoft, Mobility


Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CN... Full Bio

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