In the past, Microsoft made huge profits by selling software on discs to customers. Today, Microsoft is expanding its portfolio with hardware products with markedly lower margins. The company has transformed from a software factory into a maker of devices and online services.
In the last quarter, revenue from devices and consumer hardware was $4.73 billion, an increase of 68 percent. The increase in revenue was largely due to brisk holiday sales of its new Xbox game console and Surface tablets. Hardware sales are especially strong during the holiday season. Brendan Barnicle, an analyst at Pacific Crest Securities said, “The real growth you see is hardware. It was the devices and consumer business driving everything in the quarter.”
This year, one of the most highly sought after gifts was the new Xbox One and the new versions of Microsoft’s Surface tablet received better reviews than the first ones. During the season, Microsoft sold 7.4 million Xbox consoles, including the Xbox One and the older Xbox 360. This was up from 5.9 million in the same period a year ago. Revenue from the Surface tablet was $893 million, doubling the amount from the previous quarter.
For the quarter, Microsoft reported a 14 percent increase in revenue and a 3 percent rise in profit. Net income for the quarter increased to $6.56 billion, or 78 cents a share, up from $6.38 billion, or 76 cents a share, in the same quarter a year ago. Microsoft’s revenue jumped 14 percent, to $24.52 billion.
Microsoft management has told investors to expect major changes in its business as it refashions itself into a company that focuses on devices and services. Steven A. Ballmer, the chief executive of the company, has been the main person driving the changes at Microsoft. However, Mr. Ballmer is stepping down in the coming months and his successor has not been named yet. It will be interesting to see if his successor follows the same path.