Windows and devices take a hit in Microsoft’s Q4 earnings, but Xbox is up for the most part

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By Webdesk

Microsoft just released the fourth and final quarter of its fiscal 2023 financial results. The software maker earned $56.2 billion in revenue in the fourth quarter and net income of $20.1 billion. Turnover increased by 8 percent and net profit by 20 percent. As expected, Windows and devices revenues hit hard again this quarter, but Xbox has recovered somewhat – at least on the content side. Microsoft’s cloud, office and server businesses continue to make up for a weaker PC market.

Microsoft’s entire fiscal year 2023 hasn’t been great for Windows and devices revenue compared to fiscal year 2022. Windows OEM revenue, the price PC manufacturers pay Microsoft to put Windows on laptops and PCs, has declined significantly throughout the fiscal year, or four quarters in a row. In Q4, that means Windows OEM sales were down 12 percent, which Microsoft said was “primarily driven by the PC market.”

The Surface Laptop 5.
Photo by Becca Farsace/The Verge

Research firm IDC blames “macroeconomic headwinds, weak demand from both the consumer and commercial sectors and a shift in IT budgets” for six consecutive quarters of contraction in the PC market. Lower shipments of laptops and PCs have also negatively impacted Microsoft’s device revenues. Devices at Microsoft include HoloLens, PC accessories, and Surface devices. Total appliance sales fell 20 percent in the fourth quarter.

Microsoft also makes Xbox devices, which are separate from the other hardware. Xbox hardware revenues fell 13 percent in the fourth quarter, so it’s likely Microsoft will continue to suffer from hardware inventory and weaker demand for its Xbox Series S/X consoles.

However, revenue from Xbox content and services, including Xbox Game Pass, increased by five percent. Total gaming revenue is also up just one percent. This suggests that Xbox Game Pass has been growing year on year, despite Microsoft still not providing updated subscriber numbers.

Xbox series S and X.
Photo by Tom Warren/The Verge

Microsoft said Xbox Game Pass had grown to 25 million subscribers by January 2022, but we haven’t had an update in over 18 months now. Microsoft Gaming CEO Phil Spencer revealed in October that Xbox Game Pass growth had stalled on the console side of the service. Microsoft has instead made a bigger effort with the growth of PC Game Pass, with PC Game Pass launching in 40 new markets earlier this year.

Microsoft also recently adjusted the prices for the Xbox Game Pass. Xbox Game Pass Ultimate has moved from $14.99 a month to $16.99 (€14.99 / £12.99). The base price of the Xbox Game Pass for consoles has also been increased from $9.99 per month to $10.99 (€10.99 / £8.99). However, Microsoft has not changed the prices for PC Game Pass.

Microsoft also announced plans to end the Xbox Game Pass Friends & Family subscription in August. The plan had spread to eight countries, but Microsoft acknowledged that this was always a “preview program” and will cease to exist on August 15. There is no sign of whether it will return at a later date.

A new Xbox Game Pass Core subscription will be available in September for $9.99 per month replacing Xbox Live Gold. It offers multiplayer online gaming and a new small catalog of over 25 games – inclusive Gears 5, Forza Horizon 4And Psychonauts 2.

Microsoft had hoped to complete the acquisition of Activision Blizzard by the end of Q4 2023, but the deal deadline has been extended to October 18. Microsoft and Activision agreed to extend the deadline so that both companies can negotiate with UK regulators on a change to the transaction that would allow the deal to close. The UK’s Competition and Markets Authority (CMA) blocked the deal in April over cloud concerns, just a day after Microsoft’s Q3 2023 earnings report. The EU subsequently approved the deal with a major cloud gaming solution.

As always, it’s the Microsoft cloud companies that are really driving the company’s revenue. Microsoft 365 Consumer subscribers have grown to 67 million, compared to the 65.4 million reported in the previous quarter. Microsoft launched a new $1.99 per month Microsoft 365 Basic subscription earlier this year, which obviously has some impact on the numbers.

Revenue from commercial office products and cloud services also grew 12 percent year over year, driven by Office 365 Commercial revenue growth of 15 percent. Microsoft’s intelligent cloud business posted $24 billion in revenue for the quarter, up 15 percent. Much of that was due to the 26 percent revenue growth of Azure and other cloud services this quarter, driven by what Microsoft describes as strong demand for its consumption-based services.

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