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Microsoft Office, Windows, and cloud boosts Q1 2022 earnings

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Microsoft’s overall cloud revenue has jumped by 31 percent

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Illustration by Alex Castro / The Verge

Microsoft posted the first quarter of its 2022 financial results today, reporting revenue of $45.3 billion and a net income of $20.5 billion (GAAP). Revenue is up 22 percent, and net income has increased by 48 percent. Microsoft has seen strong revenue performance in its cloud, server, and Office businesses this quarter.

Microsoft might have just launched Windows 11 earlier this month, but in the months ahead of this new version of Windows, PC sales have started to decline in the US due to supply issues.

That doesn’t seem to have impacted Microsoft’s Windows revenues, though. Windows OEM revenue has increased by 10 percent this quarter, despite what Microsoft calls “continued PC demand impacted by supply chain constraints.”

Laptop mode on the Surface Laptop Studio.
Microsoft’s new Surface Laptop Studio.
Photo by Vjeran Pavic / The Verge

Windows commercial products and cloud services revenue has also increased by 12 percent, thanks to demand for Microsoft 365. Windows 11 has only just arrived on new devices earlier this month, so Microsoft and OEMs will be hoping the supply issues improve and that the new operating system drives even more demand for laptops and PCs.

Microsoft CEO Satya Nadella believes the PC is key right now. “The PC will be more critical than ever,” said Nadella during an earnings call today. “There has been a structural shift in PC demand emerging from this pandemic.” Microsoft is also now anticipating Windows OEM revenue growth during Q2.

Over on the Surface side, we’re now into the second quarter of Surface Laptop 4 and Surface Pro 7 Plus sales for Microsoft’s Surface revenues. Surface revenue has decreased by 17 percent this quarter, and Microsoft says that’s related to a stronger prior year by comparison.

It doesn’t seem like Surface revenue will improve next quarter, either. Microsoft CFO Amy Hood warned that Microsoft’s Q2 outlook includes an expected dip of Surface revenue in the “single digits.” It appears Microsoft is feeling the effects of PC component supply issues.

Microsoft’s Xbox Series S and X consoles.
Photo by Vjeran Pavic / The Verge

It’s nearly been a year since Microsoft’s Xbox Series X and Series S consoles have been on the market, and they’ve been continually growing hardware revenue for Xbox in recent months. Hardware revenue is up again this quarter by 166 percent, thanks to continued demand for Xbox Series X and Series S consoles.

Hood says Microsoft was “able to ship more Xbox Series X and S consoles than expected, even as demand continues to exceed supply.” It’s not clear if this better than expected console supply will last into Q2, and Microsoft’s Xbox chief has already warned supply constraints will last into 2022.

Microsoft’s overall gaming revenue is also up by 16 percent, nearly $3.6 billion for the quarter and a record Q1 for Xbox. But Xbox content and services revenue has only increased by 2 percent. Microsoft says there has been some “growth in Xbox Game Pass subscriptions,” but the company isn’t listing a new figure for its subscriber count. The last publicly disclosed one was 18 million Xbox Game Pass subs in January 2021.

We could get an Xbox Game Pass numbers update once Forza Horizon 5 and Halo Infinite have had an impact on subscriber numbers. Hood says Microsoft expects Xbox content and services revenue growth “in the mid teens” for Q2, thanks to the back to back Xbox Game Pass releases.

As always, it’s the cloud growth that has been impressive for Microsoft’s revenues, particularly as businesses adjust to hybrid work. Revenue in intelligent cloud is up 31 percent year over year, including Azure and other cloud services revenue growth of 50 percent.

Office has also had a strong quarter, with Office consumer products and cloud services revenue up 10 percent, and Microsoft 365 consumer subscribers up 19 percent to 54.1 million in total.

Microsoft’s business highlights for Q1, 2022.
Image: Microsoft

Microsoft’s business versions of Office and associated cloud services are also up 18 percent in revenue year over year, with Office 365 commercial revenue up 23 percent. If you’re wondering whether businesses are moving to the cloud, Office commercial products revenue dipped 13 percent year over year, thanks to the ongoing shift to cloud services.

While Microsoft’s three core business segments are still well balanced in terms of revenue, the intelligent cloud business is gradually pulling away. Productivity and Business Processes, which includes Office, LinkedIn, and Dynamics, makes up around 33 percent of Microsoft’s revenues. Intelligent Cloud, which includes Auzre, server products, and cloud services, now generates 38 percent of Microsoft’s revenues. That leaves More Personal Computing, which includes Xbox, Windows, and Surface, with around 29 percent of Microsoft’s overall revenue.

Update, October 26th 6:30PM ET: Article updated with comments from Microsoft CEO Satya Nadella and CFO Amy Hood.