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Microsoft’s Windows Phone results: Not pretty, but cloud saves the day


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windows-phone

Microsoft has announced its third quarter fiscal 2016 financial results, and if you’re a fan of Windows Phone, now’s the time to look away. The company sold just 2.3 million Lumia devices in the quarter, a 73% decline from the same period last year. As Lumias form the bulk of Windows Phone sales, it’s safe to say the platform is in deep trouble.

There was one minor silver lining to this decline. Revenue for the phone division fell by “just” 46%, indicating that what Microsoft sold was, at least, higher-value (and thus most likely higher-margin) devices.

Other areas of Microsoft’s earnings report were much more positive. Revenue from its Surface devices was up to $1.1 billion, a 61% increase year on year. Windows OEM revenue fell by 2%, but considering the double-digit declines in PC sales, this is a bit of a triumph. Microsoft attributes this to a change in the mix of Windows PC sales, with more high-end products sold.

The biggest success for Microsoft, as usual, was its push into the cloud. Office commercial and cloud services revenue grew by 7%, primarily driven by sales of Office 365, and the company now has 22.2 million customers using the subscription version of Office. Azure revenue increased by 120%.

Microsoft CEO Satya Nadella said in an earnings call that “We are the only cloud provider that helps companies embrace the cloud on their own terms. And we continue to innovate in areas that make it easier for our customers, including the recently released preview of Azure Stack, and by bringing SQL Server to Linux.”

With the PC market in what appears to be continual decline, and Windows Phone sales adding up to a vanishingly small percentage of the overall market, Satya Nadella’s decision to push hard into the cloud and to effectively decouple Office from Windows looks ever more effective.

However, the tiny number of Windows Phones sold must call into question the product’s continued existence. Clearly, it’s strategically important for Microsoft to have a stake in the mobile world, but unless it can start to achieve growth this year, it’s difficult to see Windows having a future as a phone operating system.

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