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Microsoft’s Q2 Earnings Boosted By Office, Surface, And Cloud Businesses

Microsoft’s Q2 Earnings Boosted By Office, Surface, And Cloud Businesses
Revenues increases from licensing of Windows and Surface and Office products drove the total revenues of Microsoft up in their second quarter for 2020 with total revenue of $36.9 billion and net income of $11.6 billion. Earlier this week, the company ended its support for Windows 7.
The income of the company was hit by a massive 21 per cent drop in the gaming revenue for the quarter as the company pinned some of the blame on a strong quarter of a third-party game last year.
Compared to the same quarter a year ago, there was a huge growth in the revenues of Microsoft’s Surface, driven by launch of Surface Pro 6, Surface Laptop 2, Surface Studio 2, and Surface Headphones. The total business of is now close to $2 billion. For the entire year, the company noted a 6 per cent growth in Surface revenue at $1.9 billion.
While refreshing its typical Surface lineup, Microsoft also launched new Surface Pro X device that has a SQ1 processor made by ARM subsidiary of Qualcomm. The latest processors from Intel and USB-C were installed in the Surface Pro 7 while a new 15-inch model (with AMD processors), USB-C, and options for metal or fabric finishes in its Surface Laptop 3 was offered by the company.
This spring, the company plans to launch its new Surface Earbuds in addition to a likely unveiling of a new Surface Book and Surface Go models later in the year. The company also has talked about its plans for launching of a new dual-screen Surface Neo and Surface Duo devices.
Microsoft expects Surface “revenue growth in the low single digits as we work through the execution challenges in the consumer segment,” said Microsoft CFO Amy Hood in an earnings call with investors.
2020 is also expected to be a big year for Microsoft in the gaming business with the launch of its Xbox business. However the latest quarter saw a drop of 21 per cent in the revenues from its gaming business even though the market is awaiting the launch of the new Xbox Series X console later this year. There was also a decrease of 11 per cent during the quarter in the revenues from Xbox content and services, Microsoft noted which was mainly because of a “third-party title” doing better last year. This decrease has partially been offset by growth in subscriptions.  
Microsoft also expects a decline in gaming revenue in the next quarter in the “low double digit range” due to console sales and “lower transaction volume on a third-party title,” said Microsoft’s CFO Amy Hood.
The latest quarter was also notable for Windows. While ending support for Windows 7 earlier this week, its Windows business also helped to propel its sale of PCs to a growth for the first time since 2011 because of upgrading by businesses and consumers.
The most important components for the growth in earnings of the company in the latest quarter were its Office and cloud businesses. During the latest quarter, there was a 16 per cent growth in revenues from Microsoft’s Office Commercial and cloud services business. There was also a 19 per cent growth in revenue from its Office consumer segment and its subscriptions for Office 365 reached 37.2 million.

Christopher J. Mitchell

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