Revenue from Microsoft’s Surface line topped nearly $ 2 billion for the tech giant’s fourth calendar quarter, and Redmond believes so strongly in its success that it’s predicting another 20 percent growth on top of that for the current quarter.
In fact, Surface sales are changing the traditional role of Windows at Microsoft, although it’s probably Intel’s fault. Because even as the Surface grows, PC sales are suffering due to a lack of chips, Microsoft revealed.
Taken together, sales of Microsoft Surface devices grew about 39 percent, “above expectations,” to $ 1.86 billion, Microsoft CFO Amy Hood said during an analyst call covering the second quarter. 2019 vendor tax.
Overall, Microsoft earned $ 8.4 billion on revenue of $ 32.5 billion, up 12 percent overall.
There’s another trend: The revenue mix within Microsoft’s More Personal Computing business is expected to move more toward Surface and Xbox games, and away from Windows.
That’s interesting, if only because Microsoft’s three business units generally break down like this: Productivity and Business Processes (up 13 percent to $ 10.1 billion) is where Microsoft Office lives.
Intelligent Cloud (up 20% to $ 9.4 billion) is where Azure and its cloud services reside, while More Personal Computing (up seven percent to $ 13 billion) is the traditional home of Windows .
But at least for this quarter, Windows will take a backseat to Surface. Windows OEMs’ revenue was down two percent on Windows 10 Pro sales and 11 percent on what Microsoft calls “non-professional” revenue.
However, Surface soared to $ 1.86 billion in revenue and games were even higher: $ 4.232 million.
Microsoft: chip shortage is hampering Windows
While it’s exciting to think that Microsoft’s Windows division could evolve into the Surface division in the long run, it’s not as simple as all of that.
Remember what we learned in October, when Microsoft surpassed the top five PC vendorsMikako Kitagawa, principal analyst at Gartner, wrote that he did not see any change in demand as a result of the processor shortage at Intel.
But there has yet to be a corresponding increase in supply, especially at the low end, where Intel’s acting CEO Bob Swan acknowledged the shortage. But he said Intel would focus its efforts on more expensive chips.
The idea was for AMD to fill in the shortage, but AMD CEO Lisa Su didn’t seem particularly interested in low-end products, now that AMD has the rich taste of profit in his mouth.
That doesn’t help Microsoft, whose executives repeatedly complained that Windows as a whole was suffering from it.
“The overall PC market was smaller than we expected primarily due to the timing of chip supply to our OEM partners, limiting an otherwise healthy PC ecosystem and negatively impacting OEM Pro and OEM revenue growth. not Pro, ”Hood said.
Later, Hood specifically said that the shortage in the processor market held back More Personal Computing’s business by about 1.5 percentage points of growth, which equates to about $ 200 million in lost business.
That also contributed to the weakness of Office 365 consumer subscriptions, which increased from 29.2 million a year ago to 33.3 million. Once again, however, the implication was that chipmakers held back the market for PCs and Windows.
So over time, Windows may once again become the growth engine for Microsoft’s largest division, and Surface’s growth will slow a bit.
But while we were pretty lukewarm on Microsoft’s tweaks to devices like the Surface Laptop 2 and Surface Pro 6, buyers are obviously buying them.
Can business synergies further drive Surface?
While we leave Microsoft’s business strategy to our colleagues at and their sister publications, it is clear even from the outside that Microsoft’s strategic foray into the company is a masterclass in synergy.
Take, for example, Microsoft Teams, a “pathway” to Microsoft 365, according to CEO Satya Nadella. Because Teams, which we didn’t like but has since been adopted by more than 420,000 businesses, according to Nadella, serves as a collaboration tool, works on OneDrive, Yammer, Skype, and more Microsoft services.
Teams encourages the use of Office 365, but also showcases the power of Microsoft’s Azure cloud, your home for AI-powered services. Azure revenue increased 76%. Microsoft uses both Azure and the cloud to drive its security offerings, protecting Outlook email.
What Microsoft calls its “energy platform,” which includes PowerBI and more, also leverages the cloud. And continue from there: Microsoft’s xCloud will go into public testing this quarter, harnessing the power of Microsoft’s cloud to power Xbox games.
What’s unclear is whether Surface devices are already benefiting from this synergy, or whether they will skyrocket even more if Microsoft discovers a way to make them a unique part of its ecosystem.
Although Surface devices like the new Surface Go are priced to fit consumer budgets, most of the price tags in the Surface line are aimed at the corporate market.
For now, though, the Surface is rolling. Hood even predicted that the Surface line would grow an additional 20 percent during the current calendar quarter, a sign of extreme confidence in the Surface’s performance right now.
While Microsoft’s phone business may have failed, PCs are clearly a Redmond success story.
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