Microsoft today released its first quarter of 2022 financial results, with revenue of $ 45.3 billion and net income of $ 20.5 billion (GAAP). Sales are up 22 percent and net income is up 48 percent. Microsoft had strong revenue performance in its cloud, server and Office businesses this quarter.
Microsoft may have just launched Windows 11 earlier this month, but in the months leading up to this new version of Windows PC sales started to decline in the United States due to supply issues.
This does not appear to have impacted Microsoft’s Windows revenue, however. Windows OEM revenue grew 10% this quarter, despite what Microsoft calls “continued demand for PCs impacted by supply chain constraints.”
Revenue from Windows commercial products and cloud services also grew 12%, driven by demand for Microsoft 365. Windows 11 just hit new devices earlier this month, so Microsoft and OEMs are hoping the issues supply are improving and the new operating system is generating 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,” Nadella said on a call for results today. “There has been a structural change in the demand for PCs emerging from this pandemic. Microsoft also now expects Windows OEM revenue growth in the second quarter.
On the Surface side, we are now in the second quarter of sales of Surface Laptop 4 and Surface Pro 7 Plus for Microsoft’s Surface revenue. Surface revenue was down 17% this quarter, and Microsoft says that is tied to a stronger previous year by comparison.
It also doesn’t look like Surface revenue will improve in the next quarter. Microsoft CFO Amy Hood warned that Microsoft’s outlook for the second quarter included an expected drop in Surface revenue in the “single digits.” It appears that Microsoft is feeling the effects of the PC component supply issues.
It’s been almost a year since Microsoft’s Xbox Series X and Series S consoles have been on the market, and they’ve been steadily increasing the hardware revenue for the Xbox in recent months. Hardware revenue is up 166% again this quarter, driven by continued demand for Xbox Series X and Series S consoles.
Hood says Microsoft has been “able to ship more Xbox Series X and S consoles than expected, although demand continues to exceed supply.” It is not clear whether this better-than-expected console offering will last until the second quarter and Microsoft’s Xbox chief has already warned that supply constraints will last until 2022.
Microsoft’s overall gaming revenue is also up 16%, nearly $ 3.6 billion for the quarter and a first-quarter record for Xbox. But revenue from Xbox content and services grew only 2%. Microsoft says there has been “growth in Xbox Game Pass subscriptions,” but the company is not listing a new number for its subscriber count. The last publicly disclosed was 18 million Xbox Game Pass subscriptions in January 2021.
We might get an update to Xbox Game Pass numbers once Forza Horizon 5 and Infinite halo had an impact on the number of subscribers. Hood says Microsoft expects revenue growth for Xbox content and services “in their mid-teens” for the second quarter, thanks to back-to-back Xbox Game Pass releases.
As always, it is the growth of the cloud that has been impressive for Microsoft’s revenue, especially as businesses adapt to hybrid work. Smart cloud revenue grew 31% year-over-year, including revenue growth from Azure and other cloud services by 50%.
Office also had a strong quarter, with consumer products and Office cloud services revenue up 10%, and the number of Microsoft 365 consumer subscribers up 19% to total 54.1 million.
Commercial versions of Office and associated cloud services from Microsoft also grew by 18% in year-over-year revenue, with Office 365 commercial revenue increasing 23%. If you’re wondering if businesses are moving to the cloud, Office commercial product revenue has fallen 13% year-over-year, thanks to the ongoing shift to cloud services.
While Microsoft’s three main business segments are still well balanced in terms of revenue, the smart cloud business is gradually moving away. Productivity and business processes, which include Office, LinkedIn, and Dynamics, account for around 33% of Microsoft’s revenue. Intelligent Cloud, which includes Auzre, server products and cloud services, now generates 38% of Microsoft’s revenue. That leaves More Personal Computing, which includes Xbox, Windows, and Surface, with around 29% of Microsoft’s overall revenue.
Update, October 26, 6:30 p.m. ET: Article updated with comments from Microsoft CEO Satya Nadella and CFO Amy Hood.