Microsoft profits down 15 per cent as falling PC sales take their toll

But our cloud revenues are positively booming, claims Microsoft, while not actually revealing them

Revenues at Microsoft fell by one-tenth in the last quarter of 2015, while profits fell by 15 per cent, both largely as a result of falling PC sales.

Revenues were down by 10.1 per cent from $26.47bn to $23.8bn, while net income fell $5.86bn to $5bn. This was led by a decline in Windows OEM sales, down by five per cent in constant currency as PC sales continued to decline in the quarter, despite the introduction of Windows 10 at the end of July.

However, Microsoft had successfully set investor expectations low enough and the company's stock increased in late trading on the news.

Like everyone, Microsoft was keen to highlight fast-growing "commercial cloud" computing sales, which it claims are now running at an annualised rate of $9.4bn. However, Microsoft continues to obscure its real cloud revenues. A division it calls "Intelligent Cloud", which includes both Azure cloud business and Windows Server software sales, filed revenues of $6.3bn in the quarter, up by five per cent.

Microsoft claimed that Azure revenue grew by 140 per cent in constant currency, "with revenue from Azure premium services growing by nearly three times, year-over-year".

Likewise, Microsoft did not fully reveal Office 365 cloud service sales. According to Microsoft, "Office commercial products and cloud services" revenue grew five per cent in constant currency, "driven by Office 365 revenue growth of nearly 70 per cent". The number of consumer Office 365 subscribers, meanwhile, increased to 20.6 million.

In terms of devices, Surface sales increased strongly, with revenues up by 29 per cent following the launch of the Surface Pro 4 and Surface Book.

In addition to the impact of declining new PC sales, Microsoft's Windows Phone devices also struggled in what should have been a strong quarter. Sales tanked by 49 per cent compared to the same quarter a year earlier, with Microsoft selling only 4.5 million Lumia phones - mostly at the low end - and the company's market share falling to just over one per cent by our guestimates.

Microsoft will endeavour to arrest the decline in the current quarter with the launch its new high-end Windows Phone devices, the Lumia 950 and Lumia 950 XL, in the current quarter. These will be the first to sport Windows 10 on a mobile device - some six months after Windows 10 was launched - but existing Lumias will have to wait until the end of the quarter before they become upgradable, if at all.