Microsoft Q3 FY19: Windows has a surprisingly strong quarter

While Microsoft's $9.6 billion in 'commercial cloud' revenues stole the headline show for its Q3 FY19, Windows also contributed significantly to Microsoft's numbers.

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Microsoft is doing its darnedest to distance itself from being best-known as the Windows company. But that doesn't mean Windows isn't still a big contributor to the company's financial success. 

On April 24, Microsoft posted its financial results for its third quarter of its fiscal 2019. As usual these days, Microsoft officials celebrated the growing contribution of its "commercial cloud" -- the Microsoft-made measurement which bundles together Office 365, Azure, some Dynamics and LinkedIn cloud revenues and other cloud products. But Windows also had an unusually big quarter. 

In Q3 FY 2019, Microsoft posted revenues of $30.6 billion and net income of $8.8 billion. The biggest bucket of those revenues came from "More Personal Computing," which includes Windows, Xbox/gaming, search advertising and Surface. That category contributed $10.7 billion in revenues for the quarter. Windows OEM Pro revenue growth for the quarter was up 15 percent year-over year. In Q2 FY 19, Windows OEM Pro revenues were down two percent year over year. And non-Pro OEM growth for this quarter was down one percent, compared to being down 11 percent in Q2 FY 19. 

Office 365 Commercial, which Microsoft execs said is now up to 180 million users, is "right where we expected" for the quarter, said Mike Spencer, General Manager of Investor Relations. Azure, which Microsoft still doesn't break out separately in revenues or by users, was "stronger than we expected," Spencer added. He said Microsoft is now in every contract dialog. And as Chief Financial Officer Amy Hood noted on Microsoft's earnings call, Microsoft has seen an increase in larger, longer-term Azure contracts this fiscal quarter.

Some other cloud-related stats: In Q3, Microsoft's Outlook apps on iOS and Android surpassed more than 100 million users, officials said. The Enterprise Mobility + Security installed base crossed the 100 million line in the quarter. And for the first time, more than 50 percent of Dynamics revenues came from the cloud. 

But cloud aside, Windows OEM and OEM Premium contributions for the quarter were stronger than Microsoft had anticipated. Spencer attributed the strong performance to Intel remedying its chip supply situation faster than anticipated. Microsoft had expected chip supply issues to hurt Windows until June, but recovery was a quarter early than anticipated, he said. 

Officials again said (as they did last quarter) that Windows 7's looming end-of-support date of January 2020 did not contribute in a significant way to Windows' strong performance in the quarter. (At this point, I'm wondering if it will; maybe some time late in calendar 2019, which would be midway through Microsoft's fiscal 2020?)