Microsoft Windows Revenue Flat in Q3 Earnings

Microsoft announced fiscal third quarter revenues showing Windows revenue flat after adjusting for the Windows Upgrade Offer.

Microsoft reported fiscal third-quarter revenues of $20.49 billion and profits of $6.06 billion, up 18 percent and 19 percent, respectively, over the same quarter a year ago.

Ironically, the software giant achieved these numbers in spite of a slump in PC sales, as revenues from the company’s Windows division rose to $5.7 billion--a 23 percent increase over the third quarter of 2012. However, after adjusting for the $1.1 billion of revenue related to Microsoft’s Windows Upgrade Offer, the Windows division's revenue was flat.

Microsoft did not provide any new numbers on sales of its Windows 8 operating system. But, during the quarter, Microsoft added to the Surface family of devices with the Surface Pro.

“The bold bets we made on cloud services are paying off as people increasingly choose Microsoft services including Office 365, Windows Azure, Xbox LIVE and Skype,” said Steve Ballmer, CEO at Microsoft, in a statement. “While there is still work to do, we are optimistic that the bets we’ve made on Windows devices position us well for the long-term.”

Microsoft stated that its Q3 financial results reflect the net recognition of revenue related to the Windows Upgrade Offer, Office Upgrade Offer and Pre-Sales, and the Entertainment and Devices Division Video Game Deferral, partially offset by the European Commission fine.

“The thorns in the side of the Windows Division in recent quarters stems from a declining PC market, the continued difficulty in penetrating the mobile and tablet space, and delayed customer upgrades as a result of applicability of legacy Windows solutions,” said Matthew Casey, a software analyst with Technology Business Research. “While the 23.1 percent year-to-year growth seen from Windows during 1Q13 was a positive result for the division, Microsoft’s ability to continue unifying its Windows platform across traditional, mobile and cloud based environments will enable the company to sustain positive growth through 2013.”

The Microsoft Business Division posted $6.32 billion of revenue, an 8 percent increase from the prior year period. During the quarter, Microsoft launched a new version of Office, enhancing productivity and the user experience through new mobility, social and cloud features. Microsoft’s Server & Tools business reported $5.04 billion of revenue, an 11 percent increase from the prior year period, driven by double-digit percentage revenue growth in SQL Server and System Center, the company said.

“Our enterprise business continues to thrive,” said Kevin Turner, chief operating officer at Microsoft, in a statement. “Enterprise customers are increasingly turning to Microsoft for their IT solutions and as a result, we continue to take share from our competitors in key areas including hybrid cloud, data platform and virtualization.”