Microsoft's Windows OEM revenues fall by one-fifth as Windows XP upgrade cycle ends

End of the Windows XP spike causes decline in Windows OEM and volume licensing revenues

Microsoft has reported a mixed set of results in its fourth quarter and full-year financial results, with Windows OEM revenues falling by one-fifth ahead of the planned 29th July launch of Windows 10.

Indeed, overall fourth-quarter revenues fell compared to the same quarter a year earlier, from $23.4 billion to $22.18 billion - a decline of just over five per cent. Due to the write-down on the company's Nokia acquisition, the company filed a net loss for the quarter of $2.1 billion.

However, revenues for the full year to the end of June were nevertheless up by eight per cent, from $86.8 billion to $93.6 billion, buoyed through much of the year by the spike stimulated by the Windows XP end-of-support upgrade rush.

The company posted full-year net income down by 45 per cent from $22 billion to $12.2 billion. This was partly due to rising costs in research and development, up by $665 million, which were not offset by cost cuts in sales, marketing and administration. Various costs related to restructuring also weighed down profits by $10 billion.

Microsoft CEO Satya Nadella referenced the increase in investment spending at Microsoft, claiming that it was going into a number of different business areas.

"Our approach to investing in areas where we have differentiation and opportunity is paying off with Surface, Xbox, Bing, Office 365, Azure and Dynamics CRM Online all growing by at least double-digits," said Nadella. "And the upcoming release of Windows 10 will create new opportunities for Microsoft and our ecosystem."

In the earnings conference call, Nadella referenced the restructuring that he had overseen and how it is intended to re-focus the company.

"We aligned our structure with our strategy to deliver better products at a more rapid pace. We focused our advertising business on search. We focused our mapping efforts on higher level experiences and developer services. We restructured our phone portfolio so that we can operate more efficiently near-term, while driving re-invention long term.

"We invested more in new mobile applications like Wunderlist, Accompli and Sunrise. We also strengthened our enterprise cloud platform by acquiring Revolution Analytics, Datazen, and Bluestripe in this quarter alone," said Nadella.

The focus on cloud has helped the company to 15 million Office 365 subscribers, he added, while demand for Dynamics enterprise software, predominantly for small and medium-sized organisations, was also strong. Some 150 million copies of Office for iOS and Android had also been downloaded.

He continued: "In Azure, both revenue and compute usage increased by triple digits year over year. We tripled our revenue from Azure Premium Services this quarter. And, with Enterprise Mobility Services, we now have more than 17,000 customers."

Amy Hood, chief financial officer at Microsoft, pointed out that the fourth quarter "effectively marked the end of the [Windows] XP refresh cycle. It impacted our Windows OEM and non-annuity volume licensing, as well as our Office non-annuity volume licensing results."

Interestingly, Microsoft's results were effectively buried under Apple's, which came out on the same day. Before Steve Ballmer became CEO of Microsoft, it would have been Apple's financial results that were overshadowed by Microsoft's.