Microsoft’s Surface and Xbox hardware revenues take a big hit in Q3

Microsoft just posted the 3rd 4th of its 2024 fiscal financial results. The package shaper made $61.9 cardinal successful gross and a nett income of $21.9 cardinal during Q3. Revenue is up 17 percent, and nett income has accrued by 20 percent.

This is nan 2nd 4th successful a statement that Microsoft is including its further gross from its Activision Blizzard acquisition that’s pushed gaming to beryllium Microsoft’s third-largest business past quarter, supra Windows. This clip astir it’s backmost into 4th place, acknowledgment to stronger than expected Windows OEM gross this quarter.

Investors are besides looking to spot signs of gross from Microsoft’s large AI investments complete nan past year, particularly connected nan Azure OpenAI side, wherever nan institution charges businesses to tally AI tasks successful nan cloud. Once again, Office and unreality revenues still reign ultimate astatine Microsoft this quarter, pinch Microsoft Cloud gross up 23 percent twelvemonth complete year.

This quarter, Windows OEM gross is up 11 percent twelvemonth complete year, a astonishment fixed Microsoft’s erstwhile guidance that it would beryllium comparatively level this quarter. This is nan value that PC manufacturers salary to licence Windows for laptops and PCs, and while it suffered successful 2023, it has been picking up again passim 2024. Microsoft is now hoping to boost its Windows OEM revenues complete nan summer, pinch nan motorboat of what it calls “AI PCs” that are powered by Qualcomm’s latest Snapdragon chips.

We’re expecting Microsoft to unveil its ain Surface devices moving connected Snapdragon X Elite and X Plus chips connected May 20th astatine a typical AI and Surface event. These caller chips could beryllium nan biggest CPU shake-up since Apple Silicon if they’re capable to present nan capacity and artillery life equilibrium that Qualcomm is promising.

Microsoft will beryllium relying connected this push, peculiarly connected nan Surface side. Once again, devices gross has declined successful Q3 by a monolithic 17 percent. Devices gross has been down for good complete 12 months now, contempt caller launches of Surface devices and Microsoft switching up its hardware portfolio amid layoffs. Microsoft now has a caller Windows and Surface chief, aft Panos Panay’s surprise departure to Amazon past year. Pavan Davuluri took over Windows precocious aft taking complete Surface devices past year. Microsoft split up nan Windows and Surface groups under 2 different leaders past year, but they’re backmost nether a azygous leader now.

Over connected nan Xbox and gaming side, Xbox contented and services revenue, which includes Xbox Game Pass, is up by 62 percent. This is erstwhile again acknowledgment to Activision Blizzard revenues, making up nan bulk of revenue.

Microsoft revealed successful February that Xbox Game Pass has now grown to 34 cardinal subscribers, including nan Xbox Game Pass Core (previously Xbox Live Gold) members. Four antecedently Xbox-exclusive games are now disposable connected PS5, pinch immoderate launching connected Nintendo Switch, too.

This strategical displacement is constricted to these games for now, but it appears to beryllium successful consequence to a slowing of Xbox Game Pass maturation and Xbox console sales. This quarter, Xbox hardware is down by a monolithic 31 percent, a large driblet pursuing a soft 4th for Xbox income during nan all-important vacation play past year.

Overall, gaming gross is up 51 percent, bolstered by nan further Activision Blizzard revenue. The recently acquired section recorded $1.97 cardinal successful gross during Q3, but nan costs of integration, transaction costs, and different costs of gross each full $980 million. With different operating expenses ($1.34 billion), it calculates to an wide operating nonaccomplishment of $350 cardinal for Activision Blizzard.

Microsoft’s Office and unreality businesses are erstwhile again nan stars of nan show, though. Office Commercial products and unreality services gross accrued 13 percent twelvemonth complete year, and moreover agency user is up 4 percent successful revenue. Microsoft 365 user subscribers are up to 80.8 cardinal now.

“This 4th Microsoft Cloud gross was $35.1 billion, up 23% twelvemonth complete year, driven by beardown execution by our income teams and partners,” says Microsoft CFO Amy Hood. Server products and unreality services gross astatine Microsoft is up 24 percent, acknowledgment to maturation of 31 percent twelvemonth complete twelvemonth for Azure and different unreality services.

Microsoft will now clasp an net telephone astatine 5:30PM ET / 3:30PM PT, and we’ll update this article pinch immoderate applicable comments from Hood aliases Microsoft CEO Satya Nadella.