Microsoft Windows and Xbox revenue takes a serious dive


American software and hardware giant, Microsoft is one of the largest brands globally. However, the expansion and global nature of a company do not guarantee a steady revenue stream. According to recent reports, Microsoft recently announced its financial report for the fourth quarter of the fiscal year 2022. In the official announcement, the company hit a revenue of $51.9 billion, an increase of 12% year-on-year. Furthermore, the company also has a net profit of $16.7 billion, an increase of 2% year on year. While overall revenue grew, revenue from two of Microsoft’s core businesses, the Windows operating system and the Xbox game console, fell.

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Microsoft Windows licensing business declines

Microsoft’s performance and the computer market are closely related.¬†The global pandemic once drove the personal computer market. According to Gartner’s research report,¬†the computer market saw a sharp decline in the most recent quarter, falling as much as 13% year on year.¬†It was also the sharpest decline in nine years, driven by geopolitical conditions, inflation, and ongoing supply chain tensions.

Microsoft’s Windows licensing business, where computer makers pay Microsoft to install the operating system, fell 2% in the quarter.¬†Microsoft explains that the main reason is the suspension of business production activities and the deterioration of the computer market.¬†Kendra Goodenough, director of investor relations at Microsoft, claims that in the fourth quarter, Microsoft records weakness in the computer market. This also hit the company’s overall performance.

In an analyst conference call after the release of the earnings report, Microsoft CEO Nadella said that although the computer market has changed in the last fiscal quarter, computer shipments are still higher than before the pandemic. The executive claims that Microsoft systems are still grabbing a share of the market.

Microsoft products complement each other

While the PC market was weak, Microsoft’s Surface tablet and computer hardware business for businesses performed well.¬†Although Microsoft didn’t release a major new tablet in the fourth quarter, overall Surface hardware revenue increased by 10%. In terms of the overall demand environment, the decline in consumer demand was relatively large, but the Surface hardware performed strongly and gave satisfactory results.

In June, Microsoft updated the Surface Laptop Go with Intel’s 11th-generation processors. However, Microsoft’s major update to the Surface product will have to wait until this fall. Plus, 2022 is also the 10th anniversary of the Surface business, so Microsoft may have some surprises for hardware buyers.

In the personal computer market, the outside world is concerned about Intel’s planned CPU and chip price hikes, as well as the impact on the computer market.¬†According to previous announcements, Intel will raise prices for CPUs and many other chip products, such as Wi-Fi and communications chips, later this year.

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Gaming business declines (Microsoft Xbox also declines)

In the Xbox game console hardware business,¬†Microsoft’s fourth-quarter revenue fell 11%. Furthermore, its game content and services also revenue fell 6%.¬†Microsoft explains that game services revenue fell mainly due to less time spent online by players¬†and lower revenue from Microsoft’s official and third-party games.¬†According to reports, Microsoft’s total game content revenue fell by 7% year-on-year.

Microsoft upgraded the Xbox game console two years ago, and there is still strong demand in the market, but it has bid farewell to the hot period when it was just released. Despite the decline in game console hardware revenue, Microsoft chief, Nadella emphasized that in North America, Microsoft has been the market leader in next-generation game consoles for three consecutive quarters. In the just-concluded fiscal year 2022, Xbox earned $16.2 billion in total revenue for the year, the best record in history.

For the first quarter of fiscal 2023, Microsoft forecasts continued declines in gaming revenue, Xbox content and services.¬†Last quarter, Microsoft disclosed that the Xbox cloud gaming service had reached 10 million users.¬†However, the user scale still has great growth prospects, because Microsoft currently only provides one free game “Fortress Night” on cloud games, and may provide more free games in the future.

On Tuesday, Nadella said that so far, 4 million people have experienced Fortnite through cloud gaming, of which 1 million are new players to Microsoft’s gaming ecosystem.¬†On Tuesday, Microsoft did not release the latest membership numbers for “Xbox Game Pass”. However, we know that the gaming membership service hit 25 million in January.¬†At the analyst meeting, Microsoft did not discuss the progress of its $68.7 billion acquisition of Activision Blizzard.¬†The deal, which will close in fiscal 2023, will also give Microsoft access to Activision Blizzard‚Äôs collection of classic game assets.

Cloud computing continues high growth

In addition to the gaming and Microsoft Windows businesses, Microsoft’s office software, cloud computing and server products continued to experience high growth.¬†Revenue in the Office commercial software business and cloud services rose 9%, Office consumer business rose 9%, and the “Microsoft 365” consumer business grew to 59.7 million members.¬†There are reports that Microsoft is still taking various measures to promote Office membership and enterprise chat tool “Teams”.

Revenue from Microsoft’s server and cloud computing services jumped 22 percent year-over-year, with revenue from core Azure cloud computing and other cloud services up as much as 40 percent.¬†Driven by advertising, the white-collar social network LinkedIn continues to be one of Microsoft’s growth engines.¬†Revenue from this business rose 26 percent (attributed by Microsoft to its talent and marketing solutions for businesses).¬†In addition, Microsoft’s search, and news advertising business increased by 15%.

In June, before the earnings report, Microsoft lowered its fourth-quarter outlook, partly due to currency issues.¬†Currently affected by geopolitics and inflation, the dollar has appreciated against a range of currencies.¬†In this way, if Microsoft’s overseas revenue is converted into US dollars, the figure will decline.

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