Microsoft makes $5.2 billion net profit, says Surface sales on the rise

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Microsoft makes $5.2 billion net profit, says Surface sales on the rise

Microsoft has just posted first quarter earnings that suggest it's faring well despite a tough PC market. Although the company's revenue was down from the previous quarter to $18.5 billion, its net profit climbed to $5.2 billion; both figures were double-digit improvements over the same quarter a year ago. The Redmond firm chalked up most of the success to growth in its corporate-focused Commercial group. Not that its Devices and Consumer division was in dire straits -- while Windows revenue from PC makers was down 7 percent, search ad revenue was up 47 percent. The Surface tablet line also saw a quarter-to-quarter increase in revenue to $400 million that was likely helped by price cuts to outgoing models.

The company hasn't provided an outlook for its second quarter as of this writing, but it's easy to anticipate strong performance. Microsoft has just launched Windows 8.1, which will net $113 million in pre-order revenue (currently deferred); it could also trigger a surge in PC sales as customers upgrade. The tech giant is also launching a new round of first-party hardware during the period, including the Surface 2, Surface Pro 2 and Xbox One. It may be difficult to repeat this perfect storm of profit in 2014, but we doubt that Ballmer and crew are about to complain in the next few months.

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Microsoft Reports Record First-Quarter Revenue of $18.53 Billion

Robust enterprise sales and improving consumer demand drive broad-based growth.

REDMOND, Wash. - October 24, 2013 - Microsoft Corp. today announced revenue of $18.53 billion for the quarter ended September 30, 2013. Gross margin, operating income, net income, and diluted earnings per share for the quarter were $13.42 billion, $6.33 billion, $5.24 billion, and $0.62 per share.

These financial results reflect the deferral of $113 million of revenue primarily related to Windows 8.1 Pre-sales. All growth comparisons in the press release relate to the corresponding period in the last fiscal year, unless otherwise noted.

The following table reconciles these financial results reported in accordance with generally accepted accounting principles (GAAP) to non-GAAP financial results. We have provided this non-GAAP financial information to aid investors in better understanding the company's performance.

Three Months Ended

September 30,

Percentage Change

(In millions, except per share amounts and percentages)


Operating income

Diluted EPS


Operating income

Diluted EPS

2012 As reported (GAAP)




Revenue deferred for Windows Upgrade Offer, Windows 8 Pre-sales, and Office Offer




2012 As adjusted (non-GAAP)




2013 As reported (GAAP)







Revenue deferred primarily related to Windows 8.1 Pre-sales




2013 As adjusted (non-GAAP)







"Our devices and services transformation is progressing and we are launching a wide range of compelling products and experiences this fall for both business and consumers," said Steve Ballmer, chief executive officer at Microsoft. "Our new commercial services will help us continue to outgrow the enterprise market, and we are seeing lots of consumer excitement for Xbox One, Surface 2 and Surface Pro 2, and the full spectrum of Windows 8.1 and Windows Phone devices."

"We saw strong focus across our teams, generating record first-quarter revenue even as we navigate a fundamental business transition. Our enterprise renewals were very healthy and our devices and consumer business continued to improve," said Amy Hood, chief financial officer at Microsoft. "We are making strategic investments in areas like technological innovation, supply chain management, and global cloud operations to build for the future and create long-term shareholder value."

Devices and Consumer revenue grew 4% to $7.46 billion.

· Windows OEM revenue declined 7%; Windows Pro revenue grew for the second consecutive quarter.
· Surface revenue grew to $400 million with sequential growth in revenue and units sold over the prior quarter.
· Search advertising revenue grew 47% driven by an increase in revenue per search and volume.

Commercial revenue grew 10% to $11.20 billion.

· SQL Server revenue grew double-digits, with SQL Server Premium revenue growing more than 30%.
· Lync, SharePoint, and Exchange, our productivity server offerings, collectively grew double-digits.
· Commercial cloud revenue grew 103%.

"We continue to execute well across our businesses and we are seeing robust demand for our enterprise products and cloud services. Strong customer adoption of Office 365, Azure, and Dynamics CRM Online is accelerating our business transition to the cloud," said Kevin Turner, chief operating officer at Microsoft. "Our investments in SQL database platform, Hyper-V, System Center, and Lync are driving market share gains as these comprehensive solutions enable customers to increase their insight and efficiency."

Business Outlook

Microsoft will provide forward-looking guidance in connection with this quarterly earnings announcement on its earnings conference call and webcast detailed below.

Webcast Details

Amy Hood, executive vice president and chief financial officer, Frank Brod, chief accounting officer, and Chris Suh, general manager of Investor Relations, will host a conference call and webcast at 2:30 p.m. PDT (5:30 p.m. EDT) today to discuss details of the company's performance for the quarter and certain forward-looking information. The session may be accessed at The webcast will be available for replay through the close of business on October 24, 2014.

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