Microsoft MSFT reported its second quarter earnings on April 24, 2014. Shares of the company are up 0.51 percent or $0.36 per share to $71.45. Below are some key takeaways from its conference call:
Satya Nadella, Chief Executive Officer:
• It's been an incredibly busy couple of months. In addition to executing on
our plan and announcing new products and services, I've spent a lot of time
gathering feedback and exchanging ideas with customers, partners, employees
and investors. It is important and valuable to see the company with a fresh
perspective, to get grounded both in our current realities and future
opportunities.
• When I think about
our industry over the next five, ten years, I see a world where computing is
more ubiquitous and all experiences are powered by ambient intelligence.
Silicon, hardware systems and software will co-evolve together and give birth
to a variety of new form factors.
• We saw continued improvement in search,
with our U.S. search share growing to 18.6% and search revenue increasing by
38%. Bing continues to deliver platform capabilities across our products. One
recent example of this is the recently announced Cortana Virtual Assistant
for Windows Phone.
• We will continue to invest in our cloud capabilities, including Office 365
and Azure in the fast-growing SaaS and cloud platform markets. We are
committed to ensuring that our cloud services are available across all device
platforms that people use. We are delivering a cloud for everyone on every
device.
• At the same time, we have bold plans to move Windows forward. We are
investing and innovating in every dimension, from form factor to software
experiences to price.
Amy Hood, Chief Financial Officer:
• We had a very good third quarter with solid results across our businesses and
strong momentum in our most strategic areas. At the same time, we remained
focused and disciplined in our spending.
• Total revenue was $20.4 billion, up
8%, and earnings per share grew 5%. We had outstanding momentum and results
in our cloud services. As Satya mentioned, commercial cloud revenue more than
doubled again this quarter. Office 365 is now on an annual revenue run rate
of $2.5 billion, and Azure revenue grew over 150%, driven by both new
customers and increased users.
• In our Office 365 Home service we added nearly one million new users this
quarter and now have over 4.4 million subscribers. We continue to enhance its
value proposition with new features, premium services and cross-platform
functionality.
• Display revenue, related to portal and
e-mail, declined, while we saw ad revenue growth in products like Skype and
Xbox. Importantly, we are innovating while expanding our cloud gross margins
through both improved scale and continuous engineering efforts to drive
efficiency.
• Businesses are clearly expressing their overwhelming preference for Windows.
Windows Pro revenue grew 19% driven by growth in business PCs, mix shift to
developed markets where attach is higher, continued strength in the
enterprise and an increased mix of Pro in small and medium businesses.
Windows volume licensing also had a solid 11% revenue growth.
• Therefore, our commercial unearned revenue grew 12% this quarter, which was
above our expectations, and our contracted not-billed balance exceeded $22
billion. We had double-digit growth in SQL, System Center, Windows Server
Premium and Lync. Clearly, our value proposition and product road map is
resonating.
• Xbox One has sold-in over five million units since launch and engagement has
been high, with users spending nearly five hours per day on their consoles.
We will continue to extend the unique entertainment value proposition of Xbox
One, particularly in markets outside of the U.S. where some services aren't
as mature.
• Xbox 360 sales exceeded our expectations this quarter, and across
the platform, Xbox Live members continued to embrace the service, with
transactional revenue growing 17%. We do expect to work through some
inventory in Q4.
• In licensing we expect revenue to be $4.1 billion to $4.3 billion. This range
reflects an expectation that the benefits of XP end-of-support will moderate.
In hardware, we expect revenue to be $1.3 billion to $1.5 billion in what is
a seasonally slower hardware quarter.
• Within this, we expect commercial other
revenue to be about $2.1 billion on the strength of the transition to our
cloud. And in corporate, we expect to defer revenue of about $100 million. We
expect COGS to be $5.7 billion to $5.8 billion with variability primarily due
to hardware.
• For the fourth quarter we expect OpEx to be
$8.4 billion to $8.6 billion when adjusting for the prior year European
Commission fine. This represents full year operating expense growth of about
4%. This is on the low end of our original guidance that we provided a year
ago of 4% to 6%, as we invest in R&D and sales efforts while rationalizing
our marketing spend.
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