Microsoft: Surface Revenue Doubled, 3.9M Xbox One And 3.5M Xbox 360′s Sold And Other Highlights From Q2 2014

Microsoft today announced their Q2 2014 financial results with record revenue driven mainly by sales of Xbox One and Surface hardware businesses. I’ve collected the highlight of each financial segments from Microsoft’s Investor website which you can read below.

MSFT Q22

Devices & Consumer Licensing:

D&C Licensing revenue decreased $319 million or 6%, due mainly to lower revenue from licenses of Windows and Consumer Office, offset in part by increased Windows Phone revenue. Retail and other sales of Windows declined $264 million or 69%, due mainly to the release of Windows 8 in the prior year. Windows OEM revenue declined $109 million or 3%, reflecting a 12% increase in OEM Pro revenue, offset by continued softness in the consumer PC market. Consumer Office revenue declined $244 million or 24%, reflecting the transition of customers to Office 365 Home Premium as well as continued softness in the consumer PC market. Windows Phone revenue increased $340 million or 50%, reflecting higher sales of Windows Phone licenses and an increase in mobile phone patent licensing revenue.

D&C Licensing gross margin decreased $153 million or 3%, due to decreased revenue, offset in part by a $166 million or 29% decrease in cost of revenue. D&C Licensing cost of revenue decreased, due mainly to a decline in traffic acquisition costs.

MSFT Q3

Devices And Hardware:

D&C Hardware revenue increased $1.9 billion or 68%, due primarily to $1.2 billion or 54% higher Xbox Platform revenue. Surface revenue was $893 million for the three months ended December 31, 2013. Xbox Platform revenue increased due to the release of Xbox One. We sold 7.4 million Xbox consoles during the second quarter of fiscal 2014, compared with 5.9 million Xbox consoles during the second quarter of fiscal year 2013. Surface revenue increased due to higher number of units sold, including sales of Surface 2 and Surface Pro 2.

D&C Hardware gross margin decreased $351 million or 46%, due to a $2.3 billion or 111% increase in cost of revenue, offset in part by higher revenue. Xbox Platform cost of revenue increased $1.6 billion. Surface cost of revenue was $932 million for the three months ended December 31, 2013. Xbox Platform cost of revenue increased due mainly to higher volumes of consoles sold and additional costs associated with the release of Xbox One. Surface cost of revenue increased with higher volumes sold, including sales of Surface 2 and Surface Pro 2.

MSFT Q4
D&C Other:

D&C Other revenue decreased $206 million or 10%, due mainly to decreased revenue from first-party video games, offset in part by an increase in online advertising revenue. First-party video games revenue decreased $291 million or 58%, due mainly to the release of Halo 4 in the second quarter of fiscal year 2013. Online advertising revenue increased $59 million or 6%. Search advertising revenue increased 34%, due primarily to increased revenue per search resulting from ongoing improvements in ad products and higher search volume, offset in part by lower display advertising revenue, which was down 32%, due mainly to a decline in Outlook.com advertising revenue.

D&C Other gross margin decreased $455 million or 51%, due to a $249 million or 22% increase in cost of revenue as well as lower revenue. D&C Other cost of revenue grew, due mainly to a $165 million or 29% increase in online advertising cost of revenue, reflecting greater investment in online infrastructure and higher traffic acquisition costs. D&C Other cost of revenue also increased due to higher resale transaction costs.

MSFT Q5
Commercial Licensing:

Commercial Licensing revenue increased $753 million or 7%, due primarily to increased revenue from our server, CAL, and Office licenses, offset in part by the transition of customers to Commercial Office 365. Server products and Commercial Office continued their strong performance as revenue grew 11% and 5%, respectively. Our annuity and non-annuity businesses both grew in line with the increase in Commercial Licensing revenue.

Commercial Licensing gross margin increased $751 million or 8%, due to higher revenue.

Commercial Others:

Commercial Other revenue increased $391 million or 28%, due to higher Cloud Services revenue and Enterprise Services revenue. Cloud Services revenue grew $315 million or 107%, due mainly to higher revenue from Commercial Office 365. Enterprise Services revenue grew $76 million or 7%, due primarily to growth in Premier Support Services.

Commercial Other gross margin increased $199 million or 92%, due to higher revenue, offset in part by a $192 million or 16% increase in cost of revenue. The increase in cost of revenue was due mainly to higher datacenter expenses, reflecting investment in online operations infrastructure.

Source: MSFT

About the author  ⁄ pradeep

Pradeep, a Computer Science & Engineering graduate.

  • blackhawk556

    Does this mean since they wrote off nearly a billion dollars in Surface and this quarter they brought in $800M+ in revenue with surface, they are about to break even at this point with the Surface platform? Or how does that work? Does it mean by next quarter Surface sales will be a billion dollar business? I honestly don’t understand at what point they can say they are making a profit on Surface.

    • Cruncher

      They wrote down $900M, which just means that they reduced the value of assets. This was rather a paper-loss than a real loss.

      • Guest

        It is a paper loss until the inventory is sold for they are to be sold for less the BOM (the cost of components and manufacturing of a unit)

  • Nfnc1234

    Too many msft hating assholes use Surface writeoff against msft, most them don’t even know what that is, or pretend they don’t. Write off in this case is product still in inventory, so it’s not counted as revenue. This number itself doesn’t mean anything. It’s not positive, it’s not negative. It only says they made more than they sold. $900m write off, is about 1.5million units. So they made 1.5m more than they expected. That’s all. That was Q4 2012, in other words, long time ago.
    Next time someone talk about this, tell them shut up and read some books.
    Now this time, $900m in sales, means about 1.5m+ units sold in last quarter. I would say this time average prices per unit drop since last gen Surface discount. Had they had enough supply, 2m+ could have been sold. From my own source, Surface sales is increasing day by day.

    • Nham Thien Duong

      Exactly, it’s almost as of most of those Microsoft-haters didn’t even have middle-school economics or anything.

  • Victor Who

    The NPD Group recently gave Windows tablets a U.S. share of 2.2 percent – even worse. In the same report, Android tablet sales were said to be up by 160 percent to nearly a 9 percent share, while the iPad ruled with just shy of 60 percent.

    So, Microsoft has certainly chosen the right number – double the revenue – with which to promote Surface sales, but when other indicators are taken into account, it looks like performance has merely risen from dismal to bad. While funky, cheap hardware like the Asus Transformer Book T100 is helping Windows 8’s overall market share, the Surface is still underperforming. And sadly, a lot of it comes down to the design of Windows 8 itself, which seems to be turning off a lot of buyers.

    Surface revenue may have doubled, but it’s still a net loss of about $40 million.

    • MicroHRD

      That loss is only because of roughly $940 million in promotion cost MSFT spent on Advertising and Marketing Surface products. Now that these are becoming super popular the company can cut back on Ads and making a big profit.

      Now people are seeing these out in puplic I suspect sale will double again this quarter. Surface for the win! Go troll somewhere else.