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Microsoft's Q3 profit dips despite stronger Windows sales

Microsoft's Q3 profit dips despite stronger Windows sales

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Microsoft has published its Q3 2014 earnings report, and the company has made $5.66 billion in net income on $20.4 billion in revenue. The revenue amount this quarter has declined by 0.4 percent from the same period last year, and net income has decreased by 6.6 percent.

Microsoft’s core consumer-focused businesses are good indicators for the health of a number of the company’s products, including Windows, Windows Phone, Office consumer subscriptions, Surface, and Xbox. A decline in PC sales continues to impact Windows, but OEM revenue for Windows increased this quarter by 4 percent thanks to what Microsoft describes as strong growth in Windows OEM pro revenue. The Windows boost is likely related to businesses increasingly moving away from Windows XP as it entered end of support earlier this month. Microsoft notes that around 90 percent of enterprise desktops worldwide are now running Windows 7 or Windows 8.

Still no confirmation of Surface sales numbers

Surface sales numbers are still a mystery, but Microsoft has provided an update on revenue. In the latest quarter, Surface accounted for $494 million in revenue, up 50 percent. Microsoft notes there is an increasing mix of second-generation and Surface Pro devices that are being sold. Elsewhere in hardware, Microsoft sold 1.2 million Xbox One consoles during the quarter, which places it still behind the PS4. 800,000 units of Xbox 360 console were also sold during the quarter, proving that the cheaper Xbox is still popular.

The cloud version of Office 365 Home Premium continues to grow amongst consumers, despite the new approach of having to pay monthly or annually for subscription access to Office software. Microsoft revealed back in March that 3.5 million subscribers were now using the service, but that number has increased to 4.4 million. Microsoft says it has added nearly 1 million subscribers over three months. The subscription provides access to desktop versions of Office and mobile variants like Office for iPad.

Windows Phone sales could be a mystery this quarter

A big mystery this quarter is Windows Phone. Last quarter Nokia Lumia sales were weaker year-over-year, but had doubled over the course of 2013. Nokia has not yet provided its financial results this quarter, and the company's devices and services business will be acquired by Microsoft tomorrow. It's not clear if we'll get a better understanding of Windows Phone growth as a result. Microsoft unveiled its Windows Phone 8.1 update earlier this month, and new handsets running the software are expected to debut as early as next month.

Microsoft's commercial revenue for its server and cloud offerings continues to do well. Revenue has increased 7 percent to $12.23 billion overall. That's a mix of its Azure cloud service, Office 365 for business and enterprise, Windows volume licenses, and products like Exchange, SharePoint, and Lync.

Microsoft CEO Satya Nadella is due to host his first earnings call at 5:30PM ET, and we'll update you accordingly with any key remarks.

Correction: This article previously stated that a European fine may have affected Microsoft profit, but the fine was applied in the quarter a year ago. We regret the error and have modified the article accordingly.