Microsoft's hardware business is a rollercoaster ride


Microsoft's hardware business is a rollercoaster.

The press release announcing Microsoft's quarterly earnings results, released today, carries this headline: "Microsoft Cloud and Hardware Results Drives Fourth Quarter Performance."

Which is a weird thing to say, because the massive, $7.6 billion Nokia writeoff this very same quarter led Microsoft to a $3.2 billion quarterly net loss - its biggest ever.


Plus, the Windows Phone business declined $552 million, a whopping 68% down from last quarter, amid lower royalty rates and the aftermath of the Nokia deal.

And the Phone Hardware business had its own dip of $748 million in revenue, or 38%, because fewer people are buying Microsoft phones, and those that do are buying cheaper phones.

But any good rollercoaster goes up, too: The Computing and Gaming hardware division, encompassing Surface tablets and Xbox games consoles, increased $591 million, or 44%, to a grand total of $1.93 billion in revenue.


Xbox One

Courtesy of Xbox

Microsoft Xbox One

Microsoft says that its Surface tablet did $888 million in revenue, representing 117% growth over last quarter, thanks to strong sales of Surface 3 and the launch of the fancier Surface Pro 3.

And the Xbox One gaming console had a good quarter, too: It sold 1.4 million consoles in just the past three months, versus 1.1 million over the same three month span last year. Xbox revenue is up 10%, or $86 million, which would have been more if it weren't for a price cut on the Xbox One hardware.

Still, even with phones dragging things down a little bit, Microsoft CEO Satya Nadella took the quarterly earnings conference call with analysts and the media as a chance to reaffirm that the company has no plans to get out of the game - it's just going to rethink its approach.


"I believe our participation in the phone segment is important," Nadella said. "We need to be smart about how many of these phones we want to make."

In other words, Microsoft is going to work towards getting its Windows Phone and Phone Hardware divisions into profitability, even if that means focusing on a more modest range of "premium" devices, Nadella said.

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