Microsoft posts record Q2 results, and beats expectations, but no new CEO

Microsoft posted record numbers — gross margin, operating income, net income, and diluted earnings per share for Q2 were $16.24 billion, $7.97 billion, $6.56 billion, and $0.78 per share, respectively — and the transition for Microsoft continues: moving away from a consumer products powerhouse to an enterprise software company.

Here’s how the company highlighted the news:

Devices and Consumer revenue grew 13% to $11.91 billion.

  • Windows OEM revenue declined 3%, reflecting strong 12% growth in Windows OEM Pro revenue, offset by continued softness in the consumer PC market.
  • Surface revenue more than doubled sequentially, from $400 million in the first quarter to $893 million in the second quarter.
  • The company sold 7.4 million Xbox console units into the retail channel, including 3.9 million Xbox One consoles and 3.5 million Xbox 360 consoles.
  • Bing search share grew to 18.2% and search advertising revenue grew 34%.

Commercial revenue grew 10% to $12.67 billion.

  • SQL Server continued to gain market share with revenue growing double-digits.
  • System Center showed continued strength with double-digit revenue growth.
  • Commercial cloud services revenue more than doubled.
  • Office 365 commercial seats and Azure customers both grew triple-digits.

But when you peer into the (exceptionally murky) tables of numbers (since Microsoft changed its way of reporting these stats — see MG Siegler’s comments on that), you see two things:

  1. Consumers are migrating away from Windows — consumer software licensing fell 6%, which equates to the movement away from Windows on personal computers as consumer switch to tablets. The commercial sales were in part increased because of the near expiration of XP and some vendors offering Windows 7 again, both of which many companies jumped in on, because of the poor reception of Windows 8.
  2. The margins on Surface and Xbox are eating profits there — yes, they are shipping more, but gross margins fell 14%. It’s not going to make la-la-land profits.

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Office 365 and Azure — and other enterprise solutions — represent the future of Microsoft. And if the company ever drops the other shoe on the CEO front —  hiring a new one, and getting Ballmer out of the picture — maybe we could see some clarity in that transition, instead of Microsoft trying to fight everyone on all fronts. There was no explicit mention of the succession in the earnings release.

As Kara Swisher points out, it has been 154 days since Ballmer announced his departure. And this would be a good quarterly result to cap his career at Microsoft, anyway.

 

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