Microsoft earnings cheat sheet: Windows is back to cash cow number one

Microsoft earnings cheat sheet: Windows is back to cash cow number one

Summary: Microsoft's Office business still is the biggest of its five units in terms of profits. But Windows is finally back to being the biggest revenue contributor in the company's latest fiscal quarter.

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It's been a while, but as of Q2 FY 2013, the Windows division is back to being the biggest of the five, revenue-wise, at the company.

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For the past few quarters, it's been the Microsoft Business Division -- home of Office and Dynamics -- that was the biggest revenue contributor. (The Office unit still is the biggest contributor of operating profit.) But this quarter, with the Office 2013/Office 365 launch not slated for another week or so, things slowed a bit.

For Microsoft's most recent quarter, with revenues totaling $21.5 billion, reported on January 24, here's the revenue breakout:

Windows: $5.88 billion (including deferral and pre-sales revenues)
Microsoft Business Division: $5.69 billion
Server and Tools: $5.19 billion
Entertainment and Devices: $3.77 billion
Online Services: $869 million

Microsoft officials aren't talking in any more detail about Windows 8, Windows RT and/or Surface sales details. Microsoft officials said recently the company sold 60 million Windows 8 licenses (which includes both upgrades sold to users and advance sales of licenses to PC makers).

Excluding the impact of the Windows Deferral, approximately 65 percent of the total Windows Division revenue came from Windows operating systems purchased by OEMs, according to Microsoft's latest 10-Q. "The remaining Windows Division revenue is generated by commercial and retail sales of Windows, Surface, PC hardware products, and online advertising."

So Windows OEM, commercial and retail sales are all part of the revenues reported by the Windows division, as are "Windows Servcies" like Messenger, Outlook.com and SkyDrive. The Surface business also reports in through the Windows Division.

How did OEM sales grow when the PC market was declining during the quarter? OEMs buy Windows licenses in bulk in regular intervals prior to selling Windows PCs with these licenses, from what I've heard from my contacts. This means Microsoft collected from its OEMs some unknown number of Windows license monies even though its OEMs may have only sold a fraction of the Windows PCs to which these licenses are attached.

The Microsoft Business Division (MBD) is where Office, SharePoint, Exchange, Lync, Yammer and Office 365 revnues are reported. It's also where the Dynamics ERP and CRM products sit. The Office client, server and services constitute more than 90 percent of the division's revenue, according to Microsoft's financial statements.

MBD revenue decreased, "due mainly to the deferral of $689 million of revenue related to the Office Upgrade Offer and $99 million of revenue related to Office Pre-Sales," the Softies said. But overall sales of the current versions of Office were still up, due primarily to business sales of both Office (volume-liensing revenues) and Dynamics.

Server and Tools Business (STB) had another strong quarter. This is where Windows Server, SQL Server, Windows Azure, Visual Studio, System Center, Windows Embedded, and "enterprise services" (premier product support, Microsoft Consulting and more) all sit. About 80 percent of STB revenues come from product sales by individuals, volume license sales, licenses sold to OEMs and retail packaged product.

E&D had an off quarter due to declining Xbox 360 sales and gaming consoles overall. "Xbox 360 platform revenue decreased $1.1 billion or 29%, due mainly to lower volumes of consoles sold and lower video game revenue, offset in part by higher Xbox LIVE revenue," according to Microsoft's financial statements.

Xbox, Xbox Live and Xbox accessories aren't the only products and services reporting into E&D. Mediaroom (IPTV software), Windows Phone and Skype are all part of E&D. On the Windows Phone front, patent-licensing revenues (the monies Microsoft collects from Windows Phone partners and Android and Chrome OS vendors who are paying Microsoft patent-licensing royalties) both figure into the equation. Microsoft officials said Windows Phone revenues increased $690 million this quarter and that this number included both patent licensing revenues and sales of Windows Phone OS licenses.

Online Services Division lost less money than usual this quarter. OSD is where Bing, Microsoft Advertising and Global Foundation Services (Microsoft's datacenters) all report in.

Topics: Microsoft, Enterprise Software, Windows, Microsoft Surface, Windows Phone

About

Mary Jo has covered the tech industry for 30 years for a variety of publications and Web sites, and is a frequent guest on radio, TV and podcasts, speaking about all things Microsoft-related. She is the author of Microsoft 2.0: How Microsoft plans to stay relevant in the post-Gates era (John Wiley & Sons, 2008).

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85 comments
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  • profit per division

    I'd prefer to see profit per division alongside revenue per division. Gives a better indication of who's swimming and who's sinking (I'm lookin' at you, Online Services).
    glonq
    • takes time for online to kick in

      online services will probably lose money for next 5 years and they know that. There is still a mindset that needs to happen in the industry before companies are willing to subscribe to software vs buy it outright. However, once that mind set takes place, the infrastructure better be in place and ready to support customers. Microsoft and Google will be the big players. Amazon will be an option too with a subset of features. With Apple's cash and covert style, you never know what they will try.
      frankwick
      • Not without Jobs

        Apple has lost its ability to spring out from the side door with something new and interesting since they lost Jobs. The company has now stepped into safe mode and will not risk being innovative. Jobs was not afraid of a gamble
        B_Manx
  • Sleight of hand?

    If revenue is supposed to be deferred, is should not be included in the current period, just to make the financials look better.

    Is MS "cooking the books" in its public statements?
    D.T.Long
    • im sure the SEC is looking at those numbers right now

      yes, im sure they wouldn't miss several billions dollars going into the wrong place.

      keep trolling, D.T. Thong.
      Master Wayne
      • Your post

        is the same "quality" as the last two you posed to me. Can't conceal your ignorance, can you.

        You obviously know nothing about accounting standards, deferred revenue and the difference between statements filed in compliance with laws and presentations to the press.

        Idiot.
        D.T.Long
        • noob

          you dont know shit about me. First.

          Second, you are clueless and it shows... why? check this out: "Is MS "cooking the books" in its public statements?"

          are you frigging serious? responding to your ignorant diatribe, let's say for the sake of argument... are you implying that Microsoft is cooking its books just because they can now that this is just a "presentation to the press" instead of a legal filing?

          so if that was true, per your logic, what do you think will happen to Microsoft's reputation if the actual legal filing with the SEC showed a totally different picture? do you really believe a multi-billion dollar company like Microsoft is in need of playing such games?

          Only a deluded, blinded APPLE SHILL/FANBOI can really come up with such stupid remarks.

          Keep posting ridiculous posts - you are making my day DTThong.
          Master Wayne
          • I do know a lot about you

            You lay out your ignorance in your posts for all to see.
            D.T.Long
          • DTL is a loser

            Go cry a river now MSFT nails your hateful butt again.
            LBiege
          • Does that mean that

            Master Wayne works for MSFT?

            "MSFT nails your hateful butt again."
            coastin
          • sad

            Reading comprehension would definitely help u in life coasthong
            Master Wayne
          • this is funny

            You accuse an Android fan of being Apple shill? Desperate much, eh?
            It is more appropriate to call the guy an Microsoft pessimist, as more and more people become.

            Microsoft have always cooked numbers, by the way.
            danbi
          • Sure they have, danbi

            And of course you'll excuse Apple for doing the same, seeing "it's different, no really, it is".
            William Farrel
          • Cooked implies illegal

            and you think the SEC allows this . . .
            rmark@...
          • C'mon, Sibyl

            If you're going to inflate the numbers of votes on pro-MS posts, please only do it on ones that are sort of intelligent.
            John L. Ries
          • Your 100% right.

            Its easy for idiots to sit around and conjure up images of wrong doing about a company they dislike even though theres not a shred of evidence of that, and at the very least some common sense logic that would tend to indicate the very wrong doing alleged is unlikely.

            And this is exactly the kind of circumstances that the Microsoft haters just cant stand. They all sit around in their sanctimonious circle jerk espousing the inevitable demise of Microsoft simply because people just don't buy desktop and laptop computers anymore; they also now buy smartphones and tablets. And that is somehow supposed to translate into the death of Microsoft, the company that produces and services the operating systems on 90% of the home and business computers in the world.

            Its an absolutely ridiculous and fantastical supposition without a shred of merit. But the ABM idiots still cheer it on as if they had a clue what they were talking about. The eagerly await the day that someone posts the news of Microsoft rapidly tumbling profits with no bottom in sight. And then....

            It dosnt happen. And they loose their friggin minds. They cant accept it. How could they have been so wrong??? How can Microsoft be making a very good profit? Why are they not showing the blatant signs of finally tanking??

            Well, the fact is, if they were not so hopelessly lost in love with some other company or software and not biased to the point of insanity they would have listened to the more even tempered people who have been pointing out for ages that Nobody (in general terms) is giving up their Windows PC or laptop. They would have taken note of the fact that despite the IT colored glasses one gets from traveling in the circles most people do around here, that the real public, the countless multi millions around the world who are not IT pros and have zero personal interest in Microsoft failing, who used Windows last year and the year before that and usually many years before that, fully intend to keep on using Windows as far off into the indefinite future as they can currently imagine.

            So despite the slowing sales of Windows computers, we all should know by now it has nothing whatsoever to do with the world giving up on Windows, it simply has to do with the fact that the market is saturated to the hilt with Windows computers that have such robust and effective hardware along with a Windows operating system, such as XP, that still runs perfectly and as such there is a significantly reduced need to replace or upgrade most peoples Windows computer, and there is little room for increased market by way of new first time purchasers in this saturated market.

            And its as if nobody has figured out yet that despite Microsfts very slow emergence into the tablet and smartphone market, this is pretty much an all new market for them. Its going to be new revenue. They are not trying to recapture lost revenue, they are simply trying to build their way into what is a new market for them.

            Will Windows sales ever be as lofty as they once were? I don't see how, not with computer hardware that's good enough for most able to last for 5 or 6 years without needing significant upgrading, and not with Windows operating systems that have now proved they can operate successfully for over a decade. And with Windows having virtually filled the majority of the market with their software already, how many brand new buyers per year are there? Probably not nearly enough to attain the old sales figures of years gone by.

            But, its also clear that over all, Microsoft is doing well and working hard at trying to do even better in the long haul.

            Its positively baffling why so many around here think that its a great thing to bash Microsoft. Just astonishing. Pure madness. It really is like; who cares? Why should anyone want to see MS drop off the face of the world? Aside from Microsofts business competition of course.

            What does it matter so much about Microsoft that make some people around here think they should just die? Isnt it just as easy to enjoy being productive with your Mac or Linux box and simply let those who like Windows better simply enjoy that? Why does Microsoft need to go under? Its baffling.

            I know there are some real idiots around who lets say they drive a GM vehicle and for some odd reason they just want FORD to die, but they are just being an idiot. I would think anyone here would understand that. SO what is it that's so different where you own and love using your Mac for example, and that somehow means there is some sense in dreaming that Microsoft is on the verge of collapse? Its every single tiny bit as idiotic as the GM guy wishing every day that FORD would collapse.

            I see no need to want Apple, Google, Microsoft, Intel, AMD, or any big IT company to go under. They all could improve in various ways, no doubt about that. But these total braindeads around here who want one company or another to just dry up and blow away or thinking like morons.

            In any event, they need to wake up to what I guess is a harsh reality for them, and that is that non of these big IT companies are about to go under any time soon.

            Live with it. Its reality.
            Cayble
          • MS was very bad for tech for a very long time

            They really did stifle innovation and trample superior competitors via leveraging and bundling. The rubble of WordPerfect and Real and Netscape and other formerly innovative companies that were reduced to also-rans, ad-ware or extinction, reminds us of that. Now, however, MS is facing genuine and existential competition. This makes their products better. Their presence makes their competitors products better. MS is now a force for good, reigning in Google's total dominance, just as Google is a check on MS.

            But for some of us older folks, it's hard to get over the real and severe harm MS did to the industry. That's where the malice comes from. It is probably not productive, but neither is it baseless.
            x I'm tc
        • PS. you are really seriously retarded

          is it too much time spent with iPads that leave you like this?

          It's a serious question.
          Master Wayne
          • Master Bate

            I have NEVER owned an Apple product in my life, so don't get your knickers in a knot. You might just pop a major artery.

            I despise shills of any stripe, but the MS kind get special attention. It now looks like I have one more to have some fun with, and you are just as dumb and as easy a target as the rest of them.

            Being a shill means you have to make stupid posts. Get used to it.
            D.T.Long
          • I'm sorry

            D.T.Long I'm sorry but when you said "Master Bate" you lost all credibility.
            Jabe124