Microsoft Q2 2016 earnings: Lumia sales decline while Surface surges

Sales tanked by 49 per cent compared to the same quarter a year earlier, with Microsoft selling only 4.5 million Lumia phones – mostly at the low end – and the company’s market share falling to just over one per cent by our guestimates.

The figures beat Wall Street analyst expectations of revenue of $25.26 billion and earnings per share of 71 cents, while also improving upon the results of the corresponding quarter a year ago of $26.5 billion in revenue and earnings per share of 71 cents.

EPS (Non-GAAP) of $0.78, versus $0.71 estimated.

Server products and cloud services revenue grew 10 percent on a constant currency basis. Xbox Live monthly active users also were up 30 percent year-over-year to a record 48 million.

Microsoft reported a better-than-expected second quarter the company grew its cloud footprint and delivered solid gains in Office 365 subscriptions and Dynamics CRM Online seats. On the negative side, Microsoft is suffering due to floundering personal computer business, which is hurting profits from longtime Microsoft software businesses, especially Windows, while on the positive side, the flourishing cloud business gives hopes to the investors that the company will retain its relevance at least for some years to come.

Satya Nadella, Microsoft’s chief executive said: “Businesses everywhere are using the Microsoft Cloud as their digital platform to drive their ambitious transformation agendas”.

Azure revenue soared 140% in constant currency terms, with revenue from Azure premium services almost trebling year on year.

That theme continues as we look at the results of Microsoft’s business divisions. Surface revenue jumped 29% in constant currency, driven by the launch of two new tablets, the Surface Pro 4 and Surface Book.

Amazon made $2.4bn (£1.7bn) from Amazon Web Services in its last quarter, so you’d think Microsoft is blowing Amazon out of the water with its $6.3bn earnings, but Microsoft isn’t actually so transparent when it comes to reporting on its cloud. The company has had more success in that business than other established commercial tech giants like Hewlett-Packard and Oracle, according to Ives, who called cloud computing a “bedrock” element of Nadella’s strategy.

Microsoft said sales growth would have been 11% in “constant currency” conditions and that the annualised revenue run rate for commercial cloud exceeds $9.4bn.