Double trouble for Microsoft as revenue from Xbox, Surface slides

Microsoft Xbox

Microsoft announced its quarterly results and the numbers suggest weakening demand for Surface devices as well as Xbox. According to the results, Microsoft's financial performance for the quarter ended March 31, 2024, was strong, with increases across all key metrics compared to the same period last year. Revenue grew 17% to $61.9 billion, operating income climbed 23% to $27.6 billion, net income rose 20% to $21.9 billion, and diluted earnings per share increased 20% to $2.94.

However, revenue from Microsoft Surface devices was down significantly. Despite launching new Surface devices, Microsoft faces a challenge as far as hardware is concerned. Device revenue has been declining for over a year, and the latest quarter saw a steep drop of 17%.

Microsoft Surface devices are the flagship Windows PCs from Microsoft. Overall, the PC market had been struggling for two years. However, a recent research report by IDC suggested that the market has bounced back. Growth was largely achieved due to easy year-over-year comparisons as the market declined 28.7% during the first quarter of 2023, which was the lowest point in PC history, as per IDC. In the previous quarter, close to 59.8 million PC units were shipped.

On the Xbox front, while the number of Game Pass subscribers has gone up to 34 million, the revenue from consoles took a nosedive. Hardware sales plunged and revenue was down by a significant 31% this quarter, following a weak holiday season. Microsoft acknowledges the issue, citing lower console sales volume as the primary factor. This comes despite some early wins for Xbox games finding success on competing platforms.

“We’re expanding our games to new platforms, bringing four of our fan favourite to Nintendo Switch and Sony PlayStation for the first time,” said Microsoft CEO Satya Nadella during an earnings call. However, console sales haven’t gone down well for Microsoft.

Amy Hood, CFO, Microsoft said that it is expected that revenue from Xbox will will decline in the next quarter as well.

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