Microsoft's revenue was down during the first quarter of its 2016 fiscal year, the company reported today in an earnings release. Revenue came in at $20.4 billion, down 12 percent year over year, while income came in at $5.8 billion, down just 1 percent from the same time last year. Net income was at $4.6 billion, a 2 percent increase. Declines came from a number of categories, but one of the notable dips was in Surface hardware. While Surface revenue had been climbing quickly over the past year, it's now fallen to $672 million, down from $908 million in the same quarter of 2015.
Hardware may be down, but the cloud is up
Microsoft has changed up the way it's reporting earnings this quarter, so we're getting more insight into some categories and less into others. One strong area continues to be Microsoft's cloud services, which are up 8 percent to $5.9 billion in revenue. Microsoft has been emphasizing the strength of its cloud services and its future as a cloud service provider under CEO Satya Nadella, so this is a stronger signal to investors than, say, falling Surface revenue. Microsoft's Azure platform alone doubled in revenue year over year.
It's not just Surface that's down on the device side of Microsoft. It should be no surprise that, pushed aside under Nadella, Microsoft's phone revenue is tanking, falling 54 percent year over year. Windows OEM revenue also fell, by 6 percent, although Microsoft says that's better than the "the overall PC market." The launch of Windows 10, it says, has helped the ecosystem and is pushing people toward more expensive computers. As for the Surface, Microsoft says that its revenue was likely down because its flagship tablet, the Surface Pro 3, was released in June 2014; it wasn't until just this month that a Surface Pro 4 was introduced. Xbox hardware revenue is also down, with Microsoft pointing to a decrease in Xbox 360 sales. Gaming revenue as a whole grew by 6 percent, however.
There were other bright spots. Bing revenue is up 29%, having gotten a boost in market share due to use of Windows 10. Office 365 revenue was way up, almost 70 percent, with Microsoft now counting 18.2 million subscribers, about 3 million of whom are new. Earnings also beat analysts' expectations, and stock is trading up in light of the release.
Microsoft's falling phone revenue seems to have had one other impact. The New York Times reports that Microsoft laid off around 1,000 employees this week, seemingly from its phone division. While it's a large number of people, it represents less than 1 percent of Microsoft's total workforce. The cuts also build upon much larger layoffs that occurred last year, with 18,000 people laid off in total, the vast majority from Microsoft's phone division.
Update October 22nd, 5:53PM ET: This story has been updated to mention layoffs reported in The New York Times.