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January 27, 2017

Microsoft by the Numbers: Ups and Downs

Microsoft (News - Alert)'s earnings report for 2017's second fiscal quarter—kind of hard to believe it's half done with the year already—features both up sides and down sides, which is par for the course of a major corporation. There are some clear trends within that earnings report, however, that may suggest some new strategies going forward.

First, the good news: the raw numbers are on an up trend. Revenue was $26.1 billion, net income $6.5 billion, and earnings per share hit $0.83. That's all up from the second quarter of 2016, where income was $25.7 billion, net income was $6.3 billion, and earnings per share hit $0.78.  Plus, these newest numbers beat Wall Street estimates, so that's a welcome shot in the arm for Microsoft.

Contained within the raw numbers was not only a celebration of Microsoft's cloud business—the intelligent cloud market, including server products and services like Azure was up 8 percent to $6.9 billion—but also a hit to the personal computing side as Windows licensing and devices was down 5 percent to $11.8 billion.

Windows original equipment manufacture (OEM) revenue was up 5 percent, as Pro revenue was up just a bit more than non-Pro revenue. Surface revenue dropped 2 percent, and gaming revenue dropped just a tick to 3 percent. The arrival of Project Scorpio later this year, at last report, may turn that around. Advertising revenue from search, driven in part by better Bing use, was up 10 percent. Windows Phone (News - Alert) revenue, meanwhile, dropped a staggering 81 percent, a clear drag on the whole picture.

Big gains happened elsewhere, too; Office 365 is still adding subscribers, though at slower rates, and Office commercial products and cloud services revenue were up 5 percent. Subscription revenue is doing great things at Microsoft, and with cloud services up 12 percent—Azure revenue was up a dizzying 93 percent—there's a new cash cow in town.

So what do these numbers mean? Microsoft is clearly a company with fingers in multiple pies, from servers to job-hunting thanks to the LinkedIn (News - Alert) connection. That's good news; diversification is seldom unwelcome, particularly in business. Focusing on one thing tends to make for bad news when that thing has a downturn, so Microsoft's ability to work several sides of the fence at once suggests it will be able to weather downturns better. Admittedly, Microsoft's devices have been crashing failures, but then Microsoft got to the mobile phone party late and has been paying for it ever since in terrible sales.

Improvement on the device sector would be worth pushing. Everything else is either holding its own or having great success, so shoring up the last big drag on the Microsoft balance sheet is a step worth taking.

Edited by Alicia Young

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