• Revenue and Income Declines in 2016 Q2: Microsoft's revenue was $23.8 billion, down 10% year-on-year. Operating income was $6.0 billion, a 23% drop, and net income was $5.0 billion, a 15% fall. Earnings per share were $0.78, down 13%.
• Reason for Decline: A significant part was attributed to the strong dollar. Non-US sales became less valuable as prices outside the US were increased. There was also a $1.9 billion impact from revenue deferrals related to Windows 10 and bundled software.
• Cloud Revenue: The cloud annualized revenue run rate across all commercial offerings is $9.4 billion, with growth in Office 365 and Azure. CEO Satya Nadella believes the enterprise cloud market opportunity is large.
• Reporting Segments: Divided into three segments - Productivity and Business Processes (covers Office, etc.), Intelligent Cloud (includes Azure, etc.), and More Personal Computing (covers Windows, hardware, etc.).
• Productivity and Business Processes: Revenue was $6.7 billion, down 2% year-on-year. Office revenue from consumers was down 14% due to the strong dollar and weak consumer PC market. There are 20.6 million consumer-oriented Office 365 subscribers.
• Intelligent Cloud: Revenue was $6.3 billion, up 5%, with operating income down 1%. Server and cloud service revenue increased. Azure revenue was up 12%.
• More Personal Computing: Revenue was $12.7 billion, down 5%. Phone revenue was down 53% with Lumia and feature phone sales falling. Surface revenue was up 22%. Windows revenue dropped 8%.
• Gaming: Revenue was up 5% with Xbox Live and game revenue growth partially offset by reduced hardware revenue. Xbox Live MAUs are up 30% to 48 million. Game revenue was up 47% due to Halo 5.
• Search: Revenue was up 17% with more Bing searches and higher revenue per search. Bing has 21% market share in the US.
• Overall Story: The cloud is strong, but the PC market is hurting. Phone sales collapsed due to scaled-back ambitions and software issues. The Surface story is positive with a solid market share and many copycat systems. There have been significant downloads of Skype and Office apps on iOS and Android with minimal impact on the balance sheet.