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Microsoft Post FY22 Q1 Earnings with 31% Increase in Cloud Revenue

Microsoft posted the first quarter of its 2022 fiscal year 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.

Windows commercial products and cloud services revenue increased by 12 percent, thanks to demand for Microsoft 365. 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.

However, 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.” 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.

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.

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