Microsoft has reported its results of the second quarter of the 2019 financial year (up until December 31, 2018). While revenue was at $32.5 billion, which is an increase of 12 percent year-on-year, sales from Windows were not as high as predicted. The reason for this was attributed to a slowdown of the personal computing market. This was not put down to consumers buying fewer than expected PCs, but due to a problem with the supply of computer chips.
This factor is said to account for reducing Windows revenue by around 1.5 percent. This was primarily due to Intel’s on-going problems in moving to 10nm manufacturing. In 2018, Intel CEO Brian Krzanich admitted that his company’s long-awaited volume shift to 10nm process architectures was delayed due to yield issues. The 10 nanometer (10 nm) lithography process is a semiconductor manufacturing process node serving as shrink from the 14 nm process.
With other aspects of Microsoft’s business there was encouraging news. The company’s operating income was $10.3 billion (an increase of 18 percent) and is net income was $8.6 billion (a significant change from the $6.3 billion loss recorded a year ago). These balance sheet gems were divided across three core areas: Productivity and Business Processes (such as Office, Exchange, SharePoint, Skype, Dynamics, and LinkedIn); Intelligent Cloud (embracing Azure, Windows Server, SQL Server, Visual Studio, and Enterprise Services); More Personal Computing (including Windows, hardware, and Xbox, as well as search and advertising).
According to Daniel Ives, an analyst at Wedbush Securities, speaking with Bloomberg: “Microsoft went through a period of hyper-growth — they are still seeing growth, but the comparable numbers have gotten harder. The company went from massive beats to an in-line quarter and that’s been a dose of reality as it wasn’t the blowout some people hoped.”
Another interesting aspect relates to Office 365. While revenue rose 34 percent, the income from perpetually licensed revenue fell by 21 percent, showing that consumers are less willing to commit long-term to Office based applications. Microsoft inferred that lower-than-expected PC sales affected this growth. To off-set this, sales of the tablet computer Surface rose by 39 percent.