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Microsoft reports FY16 Q1 results, generated $20.4 billion in revenue

Microsoft has reported its earnings for its first fiscal quarter of 2016, which ended on September 30. Overall, the Redmond, Washington-based company brought in a total of $20.4 billion in revenue. That's compared to $23.2 billion in revenue from the same period a year ago. The net income for the company came in at $4.6 billion for the quarter, compared to $4.54 billion from the same period a year ago.

Overall, Microsoft says that its Productivity and Business Processes revenue declined 3% to $6.3 billion, while revenue in Intelligent Cloud grew 8% to $5.9 billion in revenue. On the computing side, Microsoft says revenue in the "More Personal Computing" category declined 17% to revenues of $9.4 billion, highlighting the following:

  • Windows OEM revenue declined 6%, performing better than the overall PC market, as the Windows 10 launch spurred PC ecosystem innovation and helped drive hardware mix toward premium devices
  • Phone revenue declined 54% in constant currency reflecting our updated strategy
  • Search advertising revenue excluding traffic acquisition costs grew 29% in constant currency with Bing US market share benefiting from Windows 10 usage
  • Xbox Live monthly active users grew 28% to 39 million

To put the 54% decline in perspective for the Lumia line, Microsoft sold 5.8 million Lumia phones, down from 9.3 million in the same quarter a year ago.

Source: Microsoft (opens in new tab)

Strong Execution Drives Microsoft First Quarter Results

Windows 10 running on 110 million devices; Commercial cloud annualized revenue run rate exceeds $8.2 billion

REDMOND, Wash. — October 22, 2015 — Microsoft Corp. today announced the following results for the quarter ended September 30, 2015:

  • Revenue was $20.4 billion GAAP, and $21.7 billion non-GAAP
  • Operating income was $5.8 billion GAAP, and $7.1 billion non-GAAP
  • Net income was $4.6 billion GAAP, and $5.4 billion non-GAAP
  • Earnings per share was $0.57 GAAP, and $0.67 non-GAAP

Non-GAAP financial results exclude the deferral and recognition of revenue primarily related to Windows 10.

During the quarter, Microsoft announced a 16% increase in its quarterly dividend to $0.36 and returned $6.9 billion to shareholders in the form of share repurchases and dividends.

"We are making strong progress across each of our three ambitions by delivering innovation people love," said Satya Nadella, chief executive officer at Microsoft. "Customer excitement for new devices, Windows 10, Office 365 and Azure is increasing as we bring together the best Microsoft experiences to empower people to achieve more."

The following table reconciles these financial results reported in accordance with generally accepted accounting principles ("GAAP") to non-GAAP financial results. Microsoft has provided this non-GAAP financial information to aid investors in better understanding the company's performance. All growth comparisons relate to the corresponding period in the last fiscal year.

"We're pleased with our operating results this quarter. With financial discipline and strong execution, we grew operating income by 11 percent in non-GAAP constant currency," said Amy Hood, executive vice president and chief financial officer of Microsoft.

Revenue in Productivity and Business Processes declined 3% (up 4% in constant currency) to $6.3 billion, with the following business highlights:

  • Office commercial products and cloud services revenue grew 5% in constant currency with Office 365 revenue growth of nearly 70% in constant currency and continued user growth across our productivity offerings
  • Office 365 consumer subscribers increased to 18.2 million, with approximately 3 million subscribers added in the quarter
  • Dynamics revenue grew 12% in constant currency, with the Dynamics CRM Online enterprise installed base growing more than 3x year-over-year

Revenue in Intelligent Cloud grew 8% (up 14% in constant currency) to $5.9 billion, with the following business highlights:

  • Server products and cloud services revenue grew 13% in constant currency, with revenue from premium products and services growing double-digits
  • Azure revenue and compute usage more than doubled year-over-year
  • Enterprise Mobility customers more than doubled year-over-year to over 20,000, and the installed base grew nearly 6x year-over-year

Revenue in More Personal Computing declined 17% (down 13% in constant currency) to $9.4 billion, with the following business highlights:

  • Windows OEM revenue declined 6%, performing better than the overall PC market, as the Windows 10 launch spurred PC ecosystem innovation and helped drive hardware mix toward premium devices
  • Phone revenue declined 54% in constant currency reflecting our updated strategy
  • Search advertising revenue excluding traffic acquisition costs grew 29% in constant currency with Bing US market share benefiting from Windows 10 usage
  • Xbox Live monthly active users grew 28% to 39 million

"We're seeing great traction with businesses who want to bring Microsoft's cloud, mobile device management technology and data analytics together to improve security and productivity resulting in almost 70 percent year-over-year growth in our commercial cloud run rate," said Kevin Turner, chief operating officer at Microsoft.

Business Outlook

Microsoft will provide forward-looking guidance in connection with this quarterly earnings announcement on its earnings conference call and webcast.

Webcast Details

Satya Nadella, chief executive officer, Amy Hood, executive vice president and chief financial officer, Frank Brod, chief accounting officer, John Seethoff, deputy general counsel, and Chris Suh, general manager of Investor Relations, will host a conference call and webcast at 2:30 p.m. PDT (5:30 p.m. EDT) today to discuss details of the company's performance for the quarter and certain forward-looking information. The session may be accessed at https://www.windowscentral.com/e?link=https%3A%2F%2Fclick.linksynergy.com%2Fdeeplink%3Fid%3DkXQk6%252AivFEQ%26mid%3D24542%26u1%3DUUwpUdUnU35126%26murl%3Dhttp%253A%252F%252Fmicrosoft.com%252Finvestor.&token=26Vvl4ic The webcast will be available for replay through the close of business on October 22, 2016.

Adjusted Financial Results and non-GAAP Measures

During the first quarter of fiscal year 2016, GAAP revenue, operating income, net income, and earnings per share include the net impact from Windows 10 revenue deferrals. For the first quarter of fiscal year 2015, the financial results included the charges related to the integration and restructuring expenses related to both Microsoft's restructuring plan announced in July 2014 and the ongoing integration of Nokia Devices and Services ("NDS"). These items are defined below. In addition to these financial results reported in accordance with GAAP, Microsoft has provided certain non-GAAP financial information to aid investors in better understanding the company's performance. Presenting these measures without the impact of these items gives additional insight into operational performance and helps clarify trends affecting the company's business. For comparability of reporting, management considers this information in conjunction with GAAP amounts in evaluating business performance. These non-GAAP financial measures should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.

Non-GAAP Definitions

Microsoft recorded $1.28 billion net deferrals of revenue related to Windows 10 during the three months ended September 30, 2015.

Integration and restructuring expenses were $1.14 billion during the three months ended September 30, 2014, due mainly to restructuring charges of $1.05 billion, including employee severance expenses and the write-down of certain assets in connection with the restructuring plan.

Constant Currency

Microsoft presents constant currency information to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations. To present this information, current and comparative prior period results for entities reporting in currencies other than United States dollars are converted into United States dollars using the average exchange rates from the comparative period rather than the actual exchange rates in effect during the respective periods. The non-GAAP financial measures presented below should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP. All growth comparisons relate to the corresponding period in the last fiscal year.

About Microsoft

Microsoft (Nasdaq "MSFT" @microsoft) is the leading platform and productivity company for the mobile-first, cloud-first world and its mission is to empower every person and every organization on the planet to achieve more.

Forward-Looking Statements

Statements in this release that are "forward-looking statements" are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially because of factors such as:

  • intense competition in all of Microsoft's markets;
  • increasing focus on services presents execution and competitive risks;
  • significant investments in new products and services that may not be profitable;
  • acquisitions, joint ventures, and strategic alliances may have an adverse effect on our business;
  • impairment of goodwill or amortizable intangible assets causing a significant charge to earnings;
  • Microsoft's continued ability to protect and earn revenues from its intellectual property rights;
  • claims that Microsoft has infringed the intellectual property rights of others;
  • the possibility of unauthorized disclosure of significant portions of Microsoft's source code;
  • cyber-attacks and security vulnerabilities in Microsoft products and services that could reduce revenue or lead to liability;
  • disclosure of personal data that could cause liability and harm to Microsoft's reputation;
  • outages, data losses, and disruptions of our online services if we fail to maintain an adequate operations infrastructure;
  • government litigation and regulation that may limit how Microsoft designs and markets its products;
  • potential liability under trade protection and anti-corruption laws resulting from our international operations;
  • Microsoft's ability to attract and retain talented employees;
  • adverse results in legal disputes;
  • unanticipated tax liabilities;
  • Microsoft's hardware and software products may experience quality or supply problems;
  • exposure to increased economic and operational uncertainties from operating a global business;
  • catastrophic events or geo-political conditions may disrupt our business; and
  • adverse economic or market conditions may harm our business.

For more information about risks and uncertainties associated with Microsoft's business, please refer to the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" sections of Microsoft's SEC filings, including, but not limited to, its annual report on Form 10-K and quarterly reports on Form 10-Q, copies of which may be obtained by contacting Microsoft's Investor Relations department at (800) 285-7772 or at Microsoft's Investor Relations website at https://www.windowscentral.com/e?link=https%3A%2F%2Fclick.linksynergy.com%2Fdeeplink%3Fid%3DkXQk6%252AivFEQ%26mid%3D24542%26u1%3DUUwpUdUnU35126%26murl%3Dhttp%253A%252F%252Fwww.microsoft.com%252Finvestor.&token=3Yh9ckns

All information in this release is as of October 22, 2015. The company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the company's expectations.

Dan Thorp-Lancaster is the Editor in Chief for Windows Central. He began working with Windows Central as a news writer in 2014 and is obsessed with tech of all sorts. You can follow Dan on Twitter @DthorpL and Instagram @heyitsdtl. Got a hot tip? Send it to daniel.thorp-lancaster@futurenet.com.

45 Comments
  • Bad news about me..
  • This was actually better than what analysts were expecting, so I wouldn't call it a bad thing...
  • Ok so good news, i guess
  • yeah.. lets call a 50% decline in WP "not a bad thing"
  • Revenue.  Not unit sales. and on what phones?  Lumia 635, Lumia 640?  Of course revenue is down.  Their ASP must be terrible right now
  • 54% revenue decline may still reflect an increase in handsets. And that's the strategy. Sell buckets of low to mid range devices, taking a financial hit whilst broadening the ecosystem and user base. It's not rocket science, it's a short to mid term plan. They're in it for the long game.
  • Sorry, but no, see the other story.   "The bad news, although hardly surprising is the Lumia line of Windows Phones. Microsoft got pulverized with a 54% decline in phone revenue compared to the same quarter last year. That translates into just 5.8 million Lumias sold last quarter versus 9.3 million the year earlier."
  • Nadella has responsibility on Windows phone decline. He moved everything interesting to iOS and android, supported making apps for iOS and android only, and didn't produce a flagship phone his entire time as CEO. A 50% decline must be surprisingly good news when the CEO is walking away from mobile.
  • You sir, get it. Finally nice to see someone around here who doesn't have rose colored glasses about Nadella
  • Not really. MS bought Nokia's skilled staff and licensed patents. That takes a few years to integrate. Imagine the scale of that job. We won't see any of this really bear fruit until we see the Surface Phones. MS only paid circa 7 billion for Nokia. Look at what Dell paid for EMC. 67 billion. Puts it into perspective? Phone are only one part of the story. Its still an uphill struggle for MS, but Win 10 is excellent, Xbox - excellent, online services (onedrive, 365 etc) all excellent. A very diverse company. To make increased profit on lower revenue does actually mean the CEO is doing very well. :)
  • yes, but MS/Nadella too needs be held accountable. they have been to some extent been sleeping on the driver's seat as far as hardware goes. McLaren was cancelled, yet there was no plan B or order from the top to quickly put out a place holder (which 950/XL have wrongly been called) top end phone (i.e. an "i" update to 930 which would have been relatively easy to do). Also, they have not sustained the marketing effort that Nokia put on, especially in Europe. Anyway, hopefully the 950/XL can help revive the sales a bit, and that they put a decent marketing effort to it this time. And they must keep the European and few other markets they have managed to get reasonable traction in.
  • Some people like living the dream, others, the delusion.
  • No, actually there was no news about you in this article at all.
  • Wow. My company had $6b more in revenue. 
  • That doesn't mean squat.
  • 28% increase in Xbox Live users? Wow. Everything else is as expected.
  • "Phone revenue declined 54% in constant currency reflecting our updated strategy" Heh, talk about trying to put a positive spin to abysmal performance. Or, maybe the strategy (Mastermind, remember :P) is designed to lead to such results. Yes I know, it is supposed to say it is reflecting their transition to a new strategy.
  • The phone declined, but everyone expected it. 
  • Sure. 54% is pretty bad though and don't quite see how it yet had much to do with the new strategy, at least as far the publicly outlined strategy goes. Posted via the Windows Central App for Android
  • The strategy being no new phones available for sale for months, allowing the market share they did have to further decline.
  • http://techcrunch.com/2015/10/22/microsoft-jumps-6-on-profit-revenue-bea...
  • Surface brought in $672 million in top line, down from its year-ago score of $908 million. Microsoft recently introduced new Surface hardware. Seems like a steep drop, even if you consider people waiting for new devices.
  • Strong! They beat estimates by nearly a billion dollars. Impressive in a declining PC era... and the over $50 SP in after hour trading reflects that.
  • Emmm....2015, the article says 2016 they went to the future with the delorean.
  • Microsoft's fisical year started July 1....
  • It's the first quarter of the 2016 fiscal year for Microsoft
  • woooow
  • No sales figures of Lumia devices? The last couple of quarterly reports we got a actual number (which was increasing every quarter), so no mention this time means they had a terrible quarter?! All things phones ofcourse ;-)
  • 5.8M
  • That's really bad. I know there was no flagship release, but the Lumia 640/640XL were solid phones which I had expected to do a whole lot better. Was hoping to see Lumia break the 10 million this quarter. I did not expect a decline in sales, and definitely not such a huge one, in the still rapidly growing smartphone market. I pre ordered my Lumia 950xl today, on a new 2 year contract... Fingers crossed Microsoft still makes Lumia's in 2 years if results are this bad!
  • Finally, can someone translate the "Windows phone part" for dummies? 54% is a bad thing right? Or not? Whats the strategy mentioned?
  • Yes, it's bad. But expected. 
  • 54% less sales of Lumias devices compared to last year... I wonder what could last year's Lumias had in them that the current ones don't...I wonder...
  • Does it rhyme with 'cochlea' by any chance? Lol.
  • Not really. But it does sound very similar to "knock ya"...lol
  • Broccoli?
  • DJ- i hate MS- CBS zzzz loves to hate on MS for buying Nokia's mobile div. No one cares. Much more to do with 10 being around the corner, and no flagship phones. Who was going to "run out" to buy a 640? Apple could have made the 640, and it still wouldn't have sold in large numbers. MS need "aspirational" devices. The 950s while good, are not those phones.
  • Is there any way from these numbers we can know what Uber paid Microsoft to buy Bing Mapping assets? Wouldnt that show up as a huge chunk of revenue somewhere? 
  • 2016 starts on January 1st next. Is this voyeurism or just a journalistic f up
  • It's a fiscal year accounting thing. Pretty common.
  • This is why it says FY16 not CY16. Fiscal year vs. Calendar year.
  • Well, the massive drop of Lumia phone sales to 5.8 million from 9.3 million (yoy) is terrible news! With Joe B./Microsoft announcing his upcoming sabbatical/extended vacation, now kind of tells me he is definitely NOT coming back. That big a decline in sales lets you know that something has to change for Windows Phone, we've known this and seen change before, more than once, but maybe a change in mindset is what's needed and best place to start is the man on top, old Joe.....
  • Revenue dropped from 23 billion to 20 billion, that's not good news, specially since Windows 10 was launched in July 2015. I hope this Holiday Season the Xbox ecosystem becomes much more popular so that all the Xbox Accessories can contribute to better financial results for this company.
  • Count me in on that.
  • No news about Surface??