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Microsoft's Q3 2016: Surface up and Windows Phone down again

Microsoft's Q3 2016: Surface up and Windows Phone down again

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Microsoft has published its Q3 fiscal 2016 earnings report, and the company has made $3.8 billion in net income on $20.5 billion in revenue. Both revenue and profit are down from the same period last year, but the company's services and cloud products continue to help generate new revenue. The earnings won't please Wall Street investors though, many of whom were hoping to see Microsoft's stock surge and reclaim its 1999 record.

Surface-related revenue is up to $1.1 billion this quarter, an increase of 61 percent from the same period last year. Both the Surface Pro 4 and Surface Book helped push sales, but as always Microsoft is keeping the exact number of devices a secret. However, Microsoft's phone woes continue this quarter. Microsoft only sold 2.3 million Lumia devices Q3, a massive 73 percent drop from the 8.6 million in the same period last year. As a result, Microsoft's revenue from phones has declined 46 percent. Microsoft has largely retrenched from making Lumia devices over the past six months, so it's no surprise revenues and sales are being hit badly.

Lumia sales down a massive 73 percent

Most of Microsoft's quarters over the past few years have not been good to Windows, but there's a small sign that it's not all doom and gloom for PCs this time. Windows OEM revenue declined 2 percent, but that actually outperformed the rest of the PC market. Microsoft says that was due to a "higher consumer premium device mix," so it's clear the push from OEMs is starting to help at the high-end.

As always, Microsoft's strength in earnings comes from its cloud push. Office commercial and cloud services grew 7 percent this quarter, thanks to Office 365. Consumer versions of Office also grew 6 percent, and Microsoft now has 22.2 million consumers using its Office 365 subscriptions. Server products and cloud services revenue increased 5 percent, and Azure revenue increased by 120 percent. This growth is still helping offset declines in Microsoft's traditional PC-based businesses.

Microsoft will now hold an investor call at 5:30PM ET, and we'll update this article with any additional statements and information.


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