Surface Leads the Charge as Microsoft Smashes Q1 2015 Expectations

Surface Leads the Charge as Microsoft Smashes Q1 2015 Expectations

Surface sales have grown 127% Year over Year.

That was just a sample of the shockers that summarized Microsoft’s spectacular quarter that smashed analysts expectations and showed increasing momentum for many of Microsoft’s biggest bets.

Revenue totaled $23.20 billion in the period, leading to profits of $0.54 per share. Analysts had expected Microsoft to report $22.02 billion of revenue, and earnings per share of $0.49 to $0.50. Microsoft had operating income of $5.84 billion. The company’s net income (after paying taxes) totaled $4.54 billion and ended the period with $89.2 billion of cash and equivalents. Microsoft’s GAAP earnings per share were $0.54.

Here is a summary of the key pieces of Microsoft’s Q1 story:

Surface – A stellar reaction to the launch of the Surface Pro 3 is apparently starting to pay off big time for Microsoft. The Surface division’s $908 million revenues more than doubled those of the previous year’s Q1 quarter and the preceding quarter. This is a massive 127% increase. It looks like Microsoft’s pitch for a hybrid device that bridges the gap between tablets and laptops is starting to pay off. The Surface is on track to become Microsoft’s next billion dollar business, especially when considering that the busy holiday period is just around the corner. Oh, and it was profitable.

Lumia – Microsoft’s integration of the Lumia division doesn’t look to have hurt sales over the longer run. While revenues were down, the unit sales of 9.3 million smartphones were enough to mean a 5.6% increase over the year-ago quarter. It is obvious that growth is coming from a continued focus on lower end, quality smartphones that are appealing to lower income groups and emerging markets. More has to be done here, but any growth is better than growth at all.

Windows – Windows is no longer part of the free fall club as the PC market is stabilizing after the slowdown of tablet sales. Consumer and OEM Windows revenue only felt 1% and 2% respectively, while volume licensing was up 10%. If executed correctly, Windows 10 could bring back solid growth to this product line.

Xbox – Microsoft sold a record 2.4 million Xbox units.

Cloud – Microsoft’s quiet success story is not so quiet anymore. Commercial cloud revenue is up 128% year over year. Office 365 subscribers grew from 5.6 million to 7 million from quarter to quarter.

Total Devices and Consumer revenue was up 47% to $10.96 billion while Commercial revenue was up 10% to $12.28 billion.

Satya Nadella and the rest of Microsoft look to be on a solid path to growth and success. The Surface results were the largest surprise and prove that Microsoft has a chance at becoming a serious hardware player with a strong platform and app story.