Microsoft: Surface Revenue Doubled, 3.9M Xbox One And 3.5M Xbox 360?s Sold And Other Highlights From Q2 2014

Microsoft today announced their Q2 2014 financial results with record revenue driven mainly by sales of Xbox One and Surface hardware businesses. I’ve collected the highlight of each financial segments from Microsoft’s Investor website which you can read below.

Devices & Consumer Licensing:

D&C Licensing revenue decreased $319 million or 6%, due mainly to lower revenue from licenses of Windows and Consumer Office, offset in part by increased Windows Phone revenue. Retail and other sales of Windows declined $264 million or 69%, due mainly to the release of Windows 8 in the prior year. Windows OEM revenue declined $109 million or 3%, reflecting a 12% increase in OEM Pro revenue, offset by continued softness in the consumer PC market. Consumer Office revenue declined $244 million or 24%, reflecting the transition of customers to Office 365 Home Premium as well as continued softness in the consumer PC market. Windows Phone revenue increased $340 million or 50%, reflecting higher sales of Windows Phone licenses and an increase in mobile phone patent licensing revenue.

D&C Licensing gross margin decreased $153 million or 3%, due to decreased revenue, offset in part by a $166 million or 29% decrease in cost of revenue. D&C Licensing cost of revenue decreased, due mainly to a decline in traffic acquisition costs.

Devices And Hardware:

D&C Hardware revenue increased $1.9 billion or 68%, due primarily to $1.2 billion or 54% higher Xbox Platform revenue. Surface revenue was $893 million for the three months ended December 31, 2013. Xbox Platform revenue increased due to the release of Xbox One. We sold 7.4 million Xbox consoles during the second quarter of fiscal 2014, compared with 5.9 million Xbox consoles during the second quarter of fiscal year 2013. Surface revenue increased due to higher number of units sold, including sales of Surface 2 and Surface Pro 2.

D&C Hardware gross margin decreased $351 million or 46%, due to a $2.3 billion or 111% increase in cost of revenue, offset in part by higher revenue. Xbox Platform cost of revenue increased $1.6 billion. Surface cost of revenue was $932 million for the three months ended December 31, 2013. Xbox Platform cost of revenue increased due mainly to higher volumes of consoles sold and additional costs associated with the release of Xbox One. Surface cost of revenue increased with higher volumes sold, including sales of Surface 2 and Surface Pro 2.

D&C Other:

D&C Other revenue decreased $206 million or 10%, due mainly to decreased revenue from first-party video games, offset in part by an increase in online advertising revenue. First-party video games revenue decreased $291 million or 58%, due mainly to the release of Halo 4 in the second quarter of fiscal year 2013. Online advertising revenue increased $59 million or 6%. Search advertising revenue increased 34%, due primarily to increased revenue per search resulting from ongoing improvements in ad products and higher search volume, offset in part by lower display advertising revenue, which was down 32%, due mainly to a decline in Outlook.com advertising revenue.

D&C Other gross margin decreased $455 million or 51%, due to a $249 million or 22% increase in cost of revenue as well as lower revenue. D&C Other cost of revenue grew, due mainly to a $165 million or 29% increase in online advertising cost of revenue, reflecting greater investment in online infrastructure and higher traffic acquisition costs. D&C Other cost of revenue also increased due to higher resale transaction costs.

Commercial Licensing:

Commercial Licensing revenue increased $753 million or 7%, due primarily to increased revenue from our server, CAL, and Office licenses, offset in part by the transition of customers to Commercial Office 365. Server products and Commercial Office continued their strong performance as revenue grew 11% and 5%, respectively. Our annuity and non-annuity businesses both grew in line with the increase in Commercial Licensing revenue.

Commercial Licensing gross margin increased $751 million or 8%, due to higher revenue.

Commercial Others:

Commercial Other revenue increased $391 million or 28%, due to higher Cloud Services revenue and Enterprise Services revenue. Cloud Services revenue grew $315 million or 107%, due mainly to higher revenue from Commercial Office 365. Enterprise Services revenue grew $76 million or 7%, due primarily to growth in Premier Support Services.

Commercial Other gross margin increased $199 million or 92%, due to higher revenue, offset in part by a $192 million or 16% increase in cost of revenue. The increase in cost of revenue was due mainly to higher datacenter expenses, reflecting investment in online operations infrastructure.

Source: MSFT