With PC demand at a years-long high, Surface barely moved in the needle in the most recent quarter, and Windows saw mixed results.
Let’s discuss Surface first, as it’s such a short conversation: Microsoft barely mentioned Surface in its post-earnings conference call.
“The overall PC market was stronger than expected, benefiting our Windows OEM, Office consumer, and Surface businesses,” Microsoft CEO Satya Nadella said before dropping the bombshell: Though Surface finally exceeded the $2 billion revenue market, if barely, Surface revenues were only up 3 percent year-over-year (YOY). That’s a stunning disappointment.
As for Windows, it was all over the map.
“We added more new [PCs] running Windows 10 this quarter than ever before,” Mr. Nadella noted. That makes sense, and it isn’t surprising either: PC sales in 2020 were higher than they had been in over 5 years, and Windows 10 had launched a bit less than 5 years earlier.
Overall revenue growth from Windows sales to PC makers was up just 1 percent YOY, which seems a bit odd, but as Microsoft noted, that’s because the same quarter one year ago saw a big jump from the end of support for Windows 7. That said, while Windows Home sales were up 24 percent YOY, Windows Pro sales were down 9 percent. Microsoft also noted that Windows Commercial products and cloud services revenue grew 10 percent in the quarter.
Looking ahead, Microsoft expects overall PC maker revenue growth to be “in the low-single digits,” again citing the Windows 7 upgrade cycle impact from the previous year. And it expects Windows commercial products and cloud services growth to be in “the low to mid-teens” thanks to demand for Microsoft 365 and advanced security solutions.