Microsoft reports weaker Surface and Windows revenue amid global chip shortage

Microsoft released its financial results for the fourth quarter of fiscal 2021 today, reporting revenue of $46.2 billion and a net income of $16.5 billion. Revenue has climbed by 21%, while net income has increased by 47%. While Microsoft’s revenues have grown thanks to cloud and Office services, it’s evident that the worldwide chip shortage is having an impact elsewhere.

Following the PC market’s first significant growth in ten years earlier this year, there have been some indications that laptop and PC sales may be slowing again due to a global chip shortage. This is reflected in Microsoft’s Windows results this quarter.

Microsoft blames “supply chain constraints” for a three percent drop in Windows OEM revenue. Windows OEM non-pro revenue fell by 4%, while Windows OEM Pro revenue fell by 2%.

However, revenue from Windows commercial products and cloud services has climbed by 20%. This includes organizations that have signed multi-year subscriptions for Microsoft 365, which underlines the company’s aim to bundle Office and Windows.

Microsoft is currently preparing to strengthen the PC market by releasing Windows 11, which will be available on new devices in October. With a redesigned Start menu, revised style, and overall streamlining, Windows 11 represents a visual revamp of the operating system.

This is also the first time we’ve seen the new Surface Laptop 4 combined with sales of the Surface Pro 7 Plus have an impact on Microsoft’s overall Surface revenue. This quarter’s Surface revenue fell by 20%, owing to “supply difficulties” and a good quarter of Surface sales the year before.

After helping to boost hardware revenue in recent months, Microsoft’s Xbox Series X and Series S consoles are now in their third quarter of sales. Hardware income has increased by 172 percent, as planned. During Microsoft’s earnings call today, CEO Satya Nadella declared, “We’re all in on games.” “With more systems sold life-to-date than any prior generation, the Xbox Series S and X are our fastest-selling consoles ever.”

Although Microsoft’s overall gaming revenue has increased by 11%, revenue from Xbox content and services has decreased by 4%. During a solid quarter the year before, Microsoft notes increases in Xbox Game Pass subscriptions and first-party titles offsetting reductions in third-party title income.

Microsoft has not released any fresh Game Pass subscription data since announcing 18 million subscribers in January. Over the last year, Microsoft has been releasing Xbox Game Pass statistics on a quarterly basis, but there have been no updates in the last two quarters.

While Microsoft’s Windows and Surface businesses suffered this quarter, revenue growth in cloud services, Office, and LinkedIn was impressive. Office commercial revenue has increased by 20%, while Office consumer revenue has increased by 18%. Overall, Microsoft 365 consumer users have increased by 22% year over year to 51.9 million.

This quarter, revenue from server and cloud services increased by 34%, with Azure alone increasing by 51%. Microsoft’s Intelligent Cloud division generated $17.4 billion in revenue, accounting for 37% of the company’s overall revenue.

LinkedIn is also performing nicely for Microsoft. LinkedIn revenue is up 46% year over year, primarily to increased advertising demand following a fall during the pandemic’s early phases last year. LinkedIn sessions have increased by 30%, according to Microsoft, with “record engagement.” Revenue from search advertising has increased by 53%.

As a result of all of this, Microsoft now has a $10 billion annual revenue from LinkedIn. “Gaming, security, and now LinkedIn have all crossed $10 billion in annual revenue in the last three years,” Nadella remarked on the company’s earnings call today.