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Microsoft posts strong Q4 earnings, enterprise growth offsets PC slowdown

Microsoft posts strong Q4 earnings, enterprise growth offsets PC slowdown

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Microsoft has published its Q1 2014 earnings report, revealing that it made $5.24 billion in net income on $18.53 billion in revenue. Both are increases from this quarter last year, when Microsoft saw $4.47 billion in net income and $16.01 billion in revenue. "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," CEO Steve Ballmer says in a statement.

Surface is performing better

Surface revenue has grown to $400 million this quarter, however as that revenue grew, Windows OEM revenue has declined, falling by 7 percent year-over-year. Overall though, Microsoft says that devices and consumer revenue grew to $7.46 billion for its first quarter. It should be an encouraging number then for the company, as Ballmer says that by expanding Microsoft's focus on the consumer market, that it'll be able to "outgrow the enterprise market."

It’s a bit harder than usual to read how Microsoft’s individual units are doing this quarter though because of the company’s reorganization, and Microsoft largely hasn't broken down what the new divisions' performances look like. Commercial licensing revenue stood out strong however, with commercial revenue growing 10 percent year-over-year to $11.2 billion. Exchange, Lync, and SharePoint in particular, Microsoft notes, saw double-digit growth. Bing's advertising is also improving, with search ad revenue growing 47 percent from this quarter last year, a massive leap that Microsoft accounts to an increase in search volume.

In a release alongside its earnings report, Microsoft addresses the difficulties it may be seeing due to its reorganization. "We saw strong focus across our teams ... even as we navigate a fundamental business transition," Amy Hood, Microsoft's CFO, says in a statement. She also notes that Microsoft generated a record Q1 revenue. The quarter is a strong one for Microsoft, which will continue to accelerate its transition during Q2 as it begins to sell the Xbox One and its new Surface tablets, and moves nearer to closing its purchase of Nokia's phone business.

"We're committed to executing and delivering, and so far, that's what we've done."

Update: On a call discussing its earnings, Microsoft further explained that it was happy with how the company had been performing amid its transition. "We are executing better, getting out to customers what they want, and making meaningful progress through the first stages of our transformation," Hood said. "We’re committed to executing and delivering, and so far, that’s what we’ve done."

Microsoft also said that while work still needed to be done in regard to the Windows Phone 8 ecosystem, the ecosystem has been seeing a sustained growth. Office 365 also performed better than expected, the company said, following the announcement that the service has doubled its subscriber count to 2 million in under six months.

In a presentation alongside the call, Microsoft clarified how its divisions would have performed under their old organization. The Windows division saw nearly $4.47 billion in revenue, a jump from $3.24 billion this quarter last year. Its business division rose to $5.99 billion in revenue from $5.5 billion, while its entertainment and services division had a small revenue increase up to $2 billion. Every division saw a revenue increase overall.

Expanding on the success of Surface, Microsoft also noted that its RT model had sold better than the Pro model, which is likely a result of its aggressive price cuts. Microsoft also has big hopes for the Xbox One launch, saying that it should be the biggest Xbox launch to date — though that isn't necessarily saying much with only two launches under its belt so far.

Correction: A previous version of this article stated that Microsoft earned $5.31 billion in income for Q1 2013. The story has been changed to reflect that the company earned $4.47 billion in income during the quarter.