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Microsoft announced its Q2 2016 results yesterday, reporting strong performance for its cloud business and leading to a stock bump in the wake of the news. Its Surface tablet hardware business also performed well. However it’s an entirely different story for the unloved phone-making business — that albatross around Steve Ballmer Satya Nadella’s neck. Buried low down in the earnings report, Redmond notes phone revenue “declined 49% in constant currency” — couching this as a reflection of “our strategy change announced in July 2015”. Microsoft can couch away all it wants, but the truth is its phone business is dead. And no amount of ‘strategic fiddling‘ around the edges will change that. Indeed, the platform has been walking dead for multiple years now. To underline how much the Windows (née Windows Phone) smartphone project has collapsed here are the year over year sales figures… Total Windows Phones sold in Microsoft’s Q2 quarter: 4.5 million vs selling 10.5 million in the year ago quarter A spot of comparative context: just this week Apple announced it sold 75 million iPhones in its Q1. (And that in a quarter without significant iPhone sales growth for Cupertino.) #WIndows smartphone Market share 2007 12%, 2008 11%, 2009 9%, 2010 5%, 2011 3%, 2012 3%, 2013 3%, 2014 3% and now 2015 down to 2% #Lumia — Tomi Ahonen (@tomiahonen) January 29, 2016 Of course we’ve known that Windows Phone has been walking dead for years now, given its failure to achieve significant traction outside a handful of European markets. In the U.S. the platform never took off. And even in European markets like Italy where it saw some small gains Microsoft has been unable to turn regional glimmers of growth into anything vaguely resembling sustained momentum. To paraphrase Monty Python, Windows Phone is an ex-platform. Sure, Microsoft might say the platform is just resting. But consumers know the truth: it’s a dead parrot. The question now is whether Microsoft will keep making smartphones as a showcase/vanity project. Or just kill off the division entirely. Opinion is divided on that front, although given how many phone-related staff Microsoft has given the chop to already it is already pretty far down that path of ‘total focus’… Either way, one thing is absolutely clear: consumers aren’t going to be buying smartphones running Windows. Because people know a dead parrot when they see one.
Microsoft today reported earnings for its second financial quarter of 2016 (I know, that’s weird, but Microsoft’s financial year ends in June). The company reported non-GAAP revenue of $25.7 billion for the last quarter and $0.78 of adjusted per-share profit. Wall Street expected Microsoft to deliver an EPS of $0.71 on revenue of $25.26 billion. In the year-ago quarter, the company reported revenue of $26.5 billion and earnings of $0.71. Microsoft’s stock shot up over 7 percent right after the earnings were announced. “Businesses everywhere are using the Microsoft Cloud as their digital platform to drive their ambitious transformation agendas,” said Satya Nadella, chief executive officer at Microsoft. “Businesses are also piloting Windows 10, which will drive deployments beyond 200 million active devices.” Last quarter, Microsoft broke out results for its different business units for the first time and thankfully, the company didn’t make any changes to this process this time around. Here is what its results look like when we break them down by business unit. Productivity and Business Processes (PBP), including Office, consumer Office, and Dynamics: $6.7 billion compared to $6.3 billion in revenue last quarter. Office 365 now has 20.6 million subscribers. Intelligent Cloud (IC), which includes service revenue and Enterprise Services: $6.4 billion compared to $5.9 billion in the last quarter. More Personal Computing (MPC), which contains Windows, Devices, Gaming and Search: $12.7 billion. Last quarter, the company reported $9.4 billion in revenue for this group. This was largely driven by increased sales of Microsoft’s surface line which hit $1.35 billion in revenue this quarter, though phone revenue expectedly declined by 49 percent. Last quarter, Microsoft also announced that its commercial cloud business was on an $8.2 billion annual run rate. This quarter, the company updated this number to $9.4 billion. Microsoft previously said that it expects this number to hit $20 billion in 2018. As Microsoft’s director of investor relations Zack Moxcey told me right after the numbers were announced, he still feels good about this projection. The company today stressed that its performance in the cloud strengthened its results. Revenue from server products grew 10 percent, for example, and Azure revenue grew 140 percent. Microsoft also made some headway in monetizing its search ads. Revenue there was up 29 percent, the company today announced. Moxcey largely attributed this to the integration of search into Windows 10.
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