Microsoft Q3 2023 Windows, Xbox and Devices are Down Again

    Microsoft has just released its third quarter financial results for 2023. Software maker Microsoft made $52.9 billion revenue in Q3 and had a net profit of $18.3billion. Net income is up 9 percent and revenue is up 7 percent. Microsoft’s cloud and server business has compensated for the weakness in Windows, Xbox and devices.

    Microsoft’s Windows and Devices revenue had a difficult quarter in the last quarter. Q3 will be no different. Windows OEM revenue (the price PC manufacturers pay Microsoft for putting Windows on PCs and laptops) fell by 28 percent during Q3. Microsoft devices revenue has fallen again amid the PC market’s struggles.

    The PC market has had a bad quarter. Both IDC, and Canalys reported that PC and laptop shipments were down by around 30% year-over-year. Microsoft’s device revenue has also been affected by the PC market woes, including HoloLens revenue and PC accessories. Devices revenue dropped 30 percent in the third quarter.

    In today’s earnings call, Microsoft CFO Amy Hood said that despite the revenue drops, “PC demand has been a little better than expected.” Hood said that the demand for commercial products was better than expected. Microsoft now expects a similar quarter for Q4 fiscal 2023. “Windows OEMs and devices should both decrease in the low-to-mid 20s,” Hood says.

    Microsoft’s Xbox efforts are not covered by the devices revenue. This is broken down into Xbox hardware revenue which fell by 30% this quarter, and Xbox content revenue which grew 3 percent thanks to Xbox Game Pass. Overall, the gaming revenue is down 4 percent.

    Microsoft sold fewer Xbox Series S / X Consoles during the holiday quarter compared to the same period of 2022 at higher prices. It appears that this trend has continued in the latest quarter. Microsoft attributes the Xbox revenue decline to “increased supply” in the same quarter of last year. It appears that the company still struggles with hardware and possibly softer demand.

    Microsoft’s Xbox Series X / S launched in 2020. This quarter is the lowest ever for Xbox hardware revenue. It’s not surprising that Xbox hardware revenue has dropped, given the lack first-party titles in 2022.

    Microsoft CEO Satya Nadella claims that despite the hardware decline, “we have set records in Xbox for monthly active users as well as monthly active devices” during the third quarter. Microsoft has also almost reached $1 billion in subscription revenue. Microsoft expects gaming revenue to grow in its Q4 fiscal 2023 next quarter in “mid to high single-digits,” says CFO Amy Hood, alongside “low to middle teens Xbox content and service revenue growth,” thanks to Xbox Game Pass.

    Microsoft has yet to provide an update regarding Xbox Game Pass subscribers. Microsoft claimed that Xbox Game Pass had reached 25 million subscribers by January 2022. However, we haven’t heard anything about this for over a year. Microsoft Gaming CEO Phil Spencer announced in October that Xbox Game Pass’s growth had stalled on the console side . Microsoft is now focusing more efforts to increase PC Game Pass subscriptions.

    PC Game Pass was launched in 40 additional markets this month. This brings the total to 86 countries with access to Game Pass. Microsoft wants to bring Game Pass to mobile, and its proposed $68.7 Billion acquisition of Activision Blizzard is a big part of this.

    After months of back and forth, UK regulators are expected to announce their final decision tomorrow morning. This is a crucial decision that will determine whether or not this deal goes through. The CMA already supported Microsoft on Call of Dutyon PlayStation, and now the panel of experts will deliver their verdict about how the acquisition may affect the cloud gaming market. The EU will deliver its verdict next month. Meanwhile, the FTC is suing to stop Microsoft acquiring Activision Blizzard.

    Microsoft’s More Personal Computing division saw its revenues fall by 9 percent due to the weakness of Xbox devices and Windows OEM revenue. Microsoft 365 subscriptions have gone up again.

    Office, server, and cloud products have made up the difference for Xbox, Windows, and devices. Azure revenue increased by 27 percent. Server products and cloud service revenue grew by 17 percent. Microsoft claims that this growth is due to “strong demand for consumption-based services.”

    Microsoft 365 Consumer subscribers grew by 12 percent in the last quarter to reach 65.4 million. This is also an increase from the 63.2 Microsoft announced last quarter. Microsoft introduced a $1.99 a monthly Microsoft 365 Basic subscription in the beginning of this year. This has helped to keep the subscriber numbers up. Microsoft is also pushing Microsoft 365 over Microsoft Office. This will help to increase awareness.

    Office commercial products, cloud services and revenue grew 13 percent in this quarter. Office 365 revenue grew 14 percent. Microsoft also reported that LinkedIn saw “record engagements” in the third quarter. Microsoft reports that sessions on LinkedIn have increased by 15 percent, while revenue has risen 8 percent.

    Nadella revealed during Microsoft’s earnings conference that Microsoft Teams has 300 million active monthly users. This is up from 280 millions in January. Microsoft has just released the latest Teams client, which improves memory usage.

    Nadella also gave an update on Microsoft Copilot for Business, which has seen over 10,000 organizations sign up. Microsoft’s AI plan will be discussed in greater detail at Build, next month. Nadella says that the Build conference will be held in a few weeks, at which Microsoft will reveal how it is building the most powerful AI platform available to developers.

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