Introduction

Microsoft has just released its financial results for the third quarter of fiscal year 2024. The tech giant reported $61.9 billion in revenue and a net income of $21.9 billion for Q3. Revenue saw a 17 percent increase, while net income rose by 20 percent compared to the previous year.

This marks the second consecutive quarter where Microsoft has included revenue from its acquisition of Activision Blizzard, briefly elevating gaming to the company’s third-largest business. However, gaming has now slipped back to fourth place behind Windows due to stronger-than-expected Windows OEM revenue this quarter.

While Microsoft saw robust growth in Office revenue and Microsoft Cloud revenue, overall gaming revenues only increased due to Activision Blizzard. Xbox hardware revenue experienced a decline this quarter, along with devices (Surface) revenue.

Surprisingly, Windows OEM revenue saw an 11 percent year-over-year increase, defying previous guidance of relatively flat growth. Microsoft plans to further boost Windows OEM revenues with the upcoming launch of “AI PCs” powered by Qualcomm’s latest Snapdragon chips.

Microsoft is set to unveil new Surface devices running on Snapdragon X Elite and X Plus chips on May 20th. These chips could potentially revolutionize CPU performance and battery life, akin to Apple Silicon.

With declining devices revenue for over a year, Microsoft is pinning hopes on these new Surface devices. Despite leadership changes, including Pavan Davuluri taking over both Windows and Surface divisions, devices revenue continues to decline.

Looking ahead, Microsoft anticipates another decline in devices revenue in Q4, while Windows OEM revenue is expected to see low to mid single-digit growth. On the gaming front, Xbox content and services revenue surged by 62 percent, primarily due to Activision Blizzard’s contribution.

Xbox hardware revenue experienced a significant 31 percent drop this quarter, attributed to lower console sales volume. Without Activision Blizzard, Microsoft’s overall gaming revenue would have declined. Xbox Game Pass now boasts 34 million subscribers, prompting Microsoft to expand its games to rival platforms.

Conclusion

Despite challenges in the gaming sector, Microsoft’s Office and cloud businesses remain strong. Office commercial products and cloud services revenue increased by 13 percent year over year, with Microsoft 365 consumer subscribers reaching 80.8 million.

Microsoft’s cloud revenue reached $35.1 billion, up 23 percent year over year, driven by strong performance in Azure and other cloud services. Revenue from AI services contributed significantly to Azure’s growth, indicating Microsoft’s potential in the AI market.

During an investor call, CEO Satya Nadella emphasized the company’s commitment to security, considering it a top priority across all tech operations.