Microsoft Surface, Windows, and Seach revenue for FY22 Q2 blows past own expectations in a massive quarter
Despite anticipating negative revenue this quarter for Surface, Microsoft actually was up 8%, with Windows OEM licensing surging 25% year-over-year (YoY).
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What you need to know
Update January 25, 2022, at 6:25 p.m. ET:Comments from Microsoft’s FY22 Q2 earnings call have been added to the end of this report.
Microsoft reported itsFY22 Q2 earningsthis afternoon, and it was a doozy. The company reported overall revenue was$51.7 billionup 20% over the same period in 2020.
Under the More Personal Computing division, which includes Windows licensing, Surface, Xbox, and Bing, the company reported a substantial $17.47 billion, a 15% increase of the same period in 2020. Microsoft had anticipated More Personal Computing to bring in between just $16.35 and 16.75 billion during investor guidance last October.
Microsoft’s Surface broke$2 billion this time in 2020. While we don’t have a dollar amount to report (Microsoft stopped sharing those in the previous quarter), it did better than expected with 8% growth for the 2021 holiday season.
Microsoft had predicted much worse numbers during its last investor call, expecting a single-digit decline in Surface revenue, calling out the impact on premium devices due to ongoingsupply chain issues.
Microsoft says Surface revenue was driven primarly by Surface Laptop, which is interesting.
Last quarter, Microsoft reported a sharp 17% decline compared to October 2020, due to those supply chain constraints.
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Indeed, only recently did Microsoft start running national TV ads in the US for the newSurface Pro 8, suggesting it is finally getting its supply chain back up and running. The company is also finally releasingLTE and business versionsof its latest Surface devices, as well as expandingSurface Laptop Studioto other countrieslike the UK.
Surface Laptop Studio, so far, has only launched in the United States and Canada, but it is expected to launch in 47 other markets in the coming months.
Turning to Windows OEM licensing, Microsoft expected growth this quarter in the “low to mid-teens” in its recent guidance. Today, it reported that revenue was up by 25%, blowing past its expectations.
The news lines up with OEM revenue from more significant PC makers likeDell,Lenovo, andHP, who all beat estimates and set records for their most recent quarters. It also accords with reports fromCanalysandGartnerthat 2021 was the best year for PC shipments since 2012, even despite a slight dip during the recent holiday season.
During last quarter’s investment call, Microsoft CEO Satya Nadella notes a “structural shift in PC demand” due to the pandemic. Microsoft CFO Amy Hood remarked that Windows OEM revenue was “stronger than expected” due to commercial interest with higher rev per Windows license.
Windows Commercial Products, which includes Microsoft 365, was also up by a healthy 13% compared to year-over-year (YoY).
Search, and news advertising related to Bing and MSN.com had its revenue grow by a whopping 32% with “improved customer advertising spend.”
Finally, Xbox and gaming were alsoup 8% in revenue YoYwith steady growth for Xbox across hardware, games, and services.
What’s next
During the investor call, Microsoft delivered its forward-looking statement. It expects Surface revenue to grow next quarter (FY22 Q3) in the “mid-teens” driven by the demand for premium devices. Windows OEM revenue growth is also expected in the “high single digits.” Overall revenue for the entire More Personal Computing division is anticipated to range from $14.15 to $14.45 billion. If accurate, that would be up from $13 billion in the same period for 2021.
Daniel Rubino is the Editor-in-chief of Windows Central. He is also the head reviewer,podcast co-host, and analyst. He has been covering Microsoft since 2007, when this site was called WMExperts (and later Windows Phone Central). His interests include Windows, laptops, next-gen computing, and watches. He has been reviewing laptops since 2015 and is particularly fond of 2-in-1 convertibles, ARM processors, new form factors, and thin-and-light PCs. Before all this tech stuff, he worked on a Ph.D. in linguistics, watched people sleep (for medical purposes!), and ran the projectors at movie theaters because it was fun.
