Microsoft Q3 revenue up 14 percent, profit up 3 percent

Microsoft said its revenue rose 14 percent to $24.52 billion for the third quarter ended December 31, 2013. Its income grew 3 percent to $7.97 billion.

“Our devices and consumer segment contributed to the growth,” said Steve Ballmer, chief executive officer at Microsoft.

Devices and consumer revenue grew 13 percent to $11.91 billion.

Microsoft commercial revenue grew 10 percent to $12.67 billion.

Kevin Turner, chief operating officer at Microsoft, said: “Our commercial cloud services revenue grew more than 100 percent year-over-year, as customers are embracing Office 365, Azure, and Dynamics CRM Online, and making long-term commitments to the Microsoft platform.”

Windows OEM revenue declined 3 percent, reflecting strong 12 percent 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 percent and search advertising revenue grew 34 percent.

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.

Microsoft will be investing in key areas such as big data, infrastructure management, and cloud computing.

Segment performance

Third quarter growth was higher in large enterprises than small and medium-sized businesses. Consumer PCs, while better than our expectations, continued to be soft, as they face challenges from competing form factors. Developed markets outperformed emerging markets.

This quarter, Windows Pro revenue grew 12 percent and outpaced the underlying business PC market. This was driven by faster growth in both enterprises and developed markets, where Pro attach is higher. Windows non-Pro revenue, however, was down 20 percent, reflecting the dynamics of the consumer PC market.

In devices and consumer segment, revenue grew 13 percent. Within this, the licensing segment, which primarily includes Windows OEM, consumer Office, and Windows Phone, declined 6 percent, reflecting the overall PC and device market trends.

Total Windows OEM revenue declined 3 percent. The 12 percent growth in Windows Pro was offset by 20 percent declines in Windows non-Pro. Excluding the impact of China, where Microsoft continues to draw down inventory levels, Windows non-Pro revenue declined 14 percent.

Microsoft India

Office attach, including cloud offerings, was up again this quarter. Traditional consumer Office licensing revenue declined 24 percent. However, approximately 16 percentage points of this decline was due to the shift to Office 365 Home Premium. Excluding this impact, traditional consumer Office outperformed the underlying consumer PC market.

Microsoft hardware segment revenue grew $1.9 billion or 68 percent, driven by a good holiday quarter for consumer devices. Xbox One had a record launch, and together with Xbox 360, Microsoft shipped 7.4 million consoles. For Surface, Microsoft saw improved sales of Surface RT and also introduced Surface 2 and Surface Pro 2 into the market.

Commercial revenue and gross margin across both on premise and cloud services grew 10 percent. The commercial licensing segment, which reflects Microsoft traditional software licensing, grew 7 percent, and commercial other segment, which captures our commercial cloud services as well as our enterprise services business, grew 28 percent to $1.8 billion.

Microsoft Server product revenue grew 12 percent.

In the data center, the premium version of Windows Server, which targets tier one application workloads, saw significant revenue growth again this quarter. Revenue for Systems Center grew double digits, and Hyper-V, our virtualization product, gained 5 points of share over the last year.

In our data platform business, SQL Server continued to outpace the market, and revenue grew double digits, with SQL Server Premium revenue growing over 25 percent. Microsoft commercial Office products also remained strong, growing 10 percent.

Microsoft productivity server offering, SharePoint, Exchange, and Lync continue to perform well, with Lync growing over 25 percent.

Revenue for commercial cloud services again grew over 100 percent, as customers continue to leverage cloud services to improve productivity, reduce costs, and leverage a secure and trusted platform.

Microsoft is seeing broad-based adoption, as Office 365 seats, Azure customers, and Dynamic CRM net seat adds all grew over 100 percent. Microsoft has 70 percent of the Fortune 500 companies using at least one of its cloud services.

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