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Microsoft Q1 FY2017: $6bn net income, $22.3bn revenue; Surface up, cloud up, phone down

Microsoft has published its latest financial results, covering the first quarter of its 2017 fiscal year (the third quarter of the 2016 calendar year).

The company reported net income of $6.0 billion non-GAAP ($4.7 billion GAAP) for the three months ending September 30, 2016, on revenue of $22.3 billion non-GAAP ($20.5 billion GAAP). Diluted earnings per share stood at $0.76 non-GAAP ($0.60 GAAP).

During the same quarter last year (Q1 FY2016), Microsoft reported a net income of $5.4bn non-GAAP ($4.6bn GAAP) on $21.6bn non-GAAP ($20.4bn GAAP) of revenue.

Microsoft's increasing focus on business and enterprise products and services continues to pay off with further growth reported today. Revenue from the company's Productivity and Business Processes division rose by 6% (8% in constant currency) to $6.7 billion. Office commercial products and cloud services revenue increased by 5% (8% in constant currency), thanks to a remarkable increase of 51% (54% in constant currency) in Office 365 commercial revenue.

It was another good quarter for Microsoft's consumer productivity business too. Office 365 consumer products and cloud services increased by 8% (8% in constant currency), and the total number of Office 365 consumer subscribers now stands at 24 million, up from 23.1 million last quarter (Q4 FY2016).

Meanwhile, Dynamics products and cloud services also grew, with revenue rising by 11% (13% in constant currency).

Yet again, Microsoft's performance in its cloud operations was impressive with an 8% rise (10% in constant currency) in its 'Intelligent Cloud' business, with revenue now standing at $6.4 billion. Server products and cloud services revenue grew by 11% (13% in constant currency), while Azure revenue increased by a staggering 116% (121% in constant currency), with Azure compute usage more than doubling year-over-year.

On the More Personal Computing side of Microsoft's operations, overall revenue declined by 2% (1% in constant currency) to $9.3 billion. Surface revenue grew to $926 million, up from $672 million during the same quarter a year ago; that growth came despite the company now phasing out its more affordable Surface 3, with many models out of stock for weeks, if not months.

However, to the surprise of no-one, Microsoft's phone business continued to decline with revenue plummeting again by 72% (71% in constant currency). Last quarter's year-over-year decline was 71% (70% in constant currency), so this quarter saw a slightly greater hit.

Microsoft said that Windows OEM revenue was "flat year-over-year, slightly ahead of the PC market, while Windows commercial products and cloud services revenue was also "flat year-over-year, driven by annuity revenue".

Microsoft also reported a surprising fall in gaming revenue, which declined by 5% (4% in constant currency); the company said that that was "driven by lower Xbox console revenue offset by higher Xbox software and services revenue".

Search advertising revenue saw healthy growth of 9% (10% in constant currency), excluding traffic acquisition costs, "driven by increased revenue per search and search volume".

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