Xbox Hardware Down 33%, Still Profitable Thanks to the Cloud

Xbox hardware revenue is down for Microsoft yet it still shows profitable numbers thanks to its other divisions. Microsoft’s strong showing for Surface, Azure, and even Bing have kept Microsoft from any serious declines in profit.

Xbox and Smartphone are Down

Since its inception, Xbox has had a reputation of burning through money. The original Xbox was never a profitable device, and the sequel console was plagued with hardware issues causing Microsoft to lose billions. While not as damning as its past performances, the Xbox is still not performing anywhere near its main money makers. Bundled in what Microsoft refers as “More Personal Computing,” revenue for that division went down 4% to $8.9 billion. Xbox alone fell 33% in hardware revenue due in part of the price drop and lower sales. In order to combat the decline, Microsoft announced the Xbox One S. The company’s gaming efforts have long fought to push its own technology forward. Microsoft’s smartphone business fell a shockingly 71%. The steep decline is no surprise seeing as how Windows Phone has yet to receive its major Windows 10 update and dedicated hardware.

Among these shortcomings, it should be noted that the Surface brand has kept the More Personal Computing division afloat. The tablet laptop hybrid has become a big money maker for Microsoft with increased revenue by 9%. Surface alone has been a billion dollar business for quite a while, according to Mashable.

Xbox is Down but Cloud is Up

Although the Xbox division has struggled to keep up with its gaming competitors, the company as a whole is still profitable. The Azure cloud service has grown significantly, according to Microsoft. Cloud services revenue grew 7%, giving it a revenue of $6.7 billion. More specifically, Microsoft goes into detail on how “Azure revenue grew 102% (up 108% in constant currency) with Azure compute usage more than doubling year-over-year.” The company has been expanding its cloud business in order to keep up with Amazon’s large lead in the cloud industry, which includes expansions in the gaming industry. Microsoft has offered developers the chance to use their Azure services and has had a video game built from the ground up with cloud benefits in mind.

Bing Becomes an Advertisement Giant

Bing, often said to be a second rate search engine, has been steadily increasing its use to Microsoft. Not only does Bing power many of the search components in Microsoft’s hardware, it has also become an tool for advertisers. According to Bloomberg, “Bing is on track to generate roughly $5.3 billion in revenue for Microsoft’s fiscal year ended June 30, based on the pace of sales during the previous nine months.” Not only is the search engine considered the information backbone of the company, it may soon even pass yearly revenue of what used to be Microsoft’s main money maker, Windows. While still not on par to Google or Facebook advertising services, Bing has come from being what many called a money pit to an actual, profitable service.

Overall the results for Microsoft in Fiscal Year 2016 are as follows.

· Revenue was $85.3 billion GAAP, and $92.0 billion non-GAAP

· Operating income was $20.2 billion GAAP, and $27.9 billion non-GAAP

· Net income was $16.8 billion GAAP, and $22.3 billion non-GAAP

· Diluted earnings per share was $2.10 GAAP, and $2.79 non-GAAP

For more news on quarterly earnings follow The Inner Circle.

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