Windows revenue ticks up slightly in June quarter

But More Personal Computing division continues to be burdened by smartphone albatross

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Credit: Reuters/Pichi Chuang

Microsoft yesterday reported that second-quarter revenue for its More Personal Computing division was down 4% even though Windows revenue was up over the prior year.

Analysts on the company's earnings call Tuesday didn't seem to care: None of those who questioned CEO Satya Nadella or CFO Amy Hood bothered to ask about the division, Windows, or the Surface hardware -- much less about the plummeting revenue of the nearly-abandoned mobile handset strategy.

More Personal Computing (MPC) -- one of three financial reporting groups -- booked revenue of $8.9 billion, off from last year's $9.2 billion. It was a return for MPC to the negative after the March quarter's revenue climbed 1%.

The collapse of Microsoft's smartphone business clearly contributed, although neither Nadella or Hood mentioned the $870 million revenue decline -- represented a plunge of 71% -- that was credited to the retreat from all but a sliver of the phone market.

In May, Microsoft said it would lay off another 1,850 workers and take a $1 billion charge against earnings when it took yet another tack.

Windows made up some of the smartphone slide, performing better in the quarter than in 2015. Payments from OEMs (original equipment manufacturers) rose 11% overall, fueled by a 27% increase in OEM revenue from consumer PCs and devices (compared to just a 2% increase from enterprise-grade PC licenses). And volume licensing revenue from large businesses climbed by 3%.

The big jump of consumer OEM revenue was due to an easy comparison to 2015's June quarter, when that segment fell 27% from the same period in 2014. Last year's downturn was blamed on slack in the sales channel as OEMs prepared devices for Windows 10.

"Before every launch, we tend to have a tightening in the [OEM] channel as they prepare and run reasonably lean," Hood said a year ago while giving her take on Windows' slump.

Overall, Windows revenue in this year's June quarter "increased slightly," Microsoft said. But because the company no longer discloses revenue for many product segments, including Windows, nor provides enough data to reverse engineer the number, it's impossible for outsiders to do more than estimate what "slightly" meant to the Redmond, Wash. firm.

In fact, Windows' finances are substantially muddier now than they once were. Because Microsoft promised free updates and upgrades for Windows 10 to consumers and many businesses, the company must set aside, or defer, some revenue. That revenue is recognized over a two-to-four-year span.

The figures Microsoft touted for MPC, including its claims of Windows growth, were based on calculations that ignored the revenue deferral. If the income withholding were taken into account -- in a filing with the U.S. Securities & Exchange Commission (SEC) Microsoft said just over $2 billion was deferred -- MPC's revenue would have been just $6.9 billion, a year-over-year contraction of 26%.

Windows 10 is within spitting distance of a pair of milestones, including the end of Microsoft's free upgrade offer on July 29 and the release of the next upgrade on Aug. 2. Nadella called out the Anniversary Edition in Tuesday's call with Wall Street.

"We expect [the edition's] advances will drive increased adoption of Windows 10, particularly in the enterprise," Nadella said.

mpc q2 2016 Microsoft

Microsoft's More Personal Computing division -- Windows revenue is just one component  -- dropped by 4% in the June quarter. Microsoft identifies the June quarter as Q4 because it was the final reporting period for its 2016 fiscal year. 

This story, "Windows revenue ticks up slightly in June quarter" was originally published by Computerworld.

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