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Microsoft offsets tanking PC sales with Windows 8 upgrades, Surface sales

Published Apr 19th, 2013 4:35PM EDT
Surface sales and Windows 8 upgrades helped Microsoft increase revenues

Despite PC sales recently experiencing their steepest decline ever in a single quarter, Microsoft managed to increase overall revenues from its Windows division. The company reported Windows revenue of $5.7 billion for the first three months of 2013, up 24% from the $4.633 billion it reported in the same time period from last year. The Windows division is still extremely important to Microsoft and as a whole generated 27% of the company’s total revenue and 45% of its profits. The question remains, however: How did Windows do so well when the PC industry tumbled to all-time lows?

As noted by The Guardian, Microsoft’s promotional $15 Windows 8 upgrade offer ran through to December, at which time the company could claim this “deferred” revenue of $1.1 billion. Even without the boost, however, Windows revenue reached $4.60 billion, slightly less than the $4.63 billion a year ago.

Chris Suh, Microsoft’s general manager for investor relations, revealed revenues were boosted by non-OEM growth from users who bought Windows upgrade licences, from companies who bought volume licences and from sales of its homemade Surface tablet.

“Non-OEM revenue grew 40% this quarter, driven by sales of Surface and continued double-digit growth in volume licensing,” said Suh. “Businesses continue to value the Windows platform, and volume licensing of Windows is on track to deliver almost $4 billion in revenue this year, and nearly three-quarters of enterprise agreements that we signed this year include Windows.”

Microsoft didn’t announce sales numbers of its Surface tablet, although analysts suggest the company sold an estimated 1 million to 1.5 million units. The Guardian believes that “margins might have been thin but the revenue boost would be solid.” It is estimated that Surface sales could have boosted Windows revenue anywhere from $500 million to $1 billion.

Subtracting the $1.1 billion in “deferred revenues” and at least $500 million for Surface sales, Microsoft’s Windows division is left with revenues of $4.1 billion, a 12% decrease year-over-year and close to the PC industry’s 13.9% drop in the first quarter.

So despite its successes with Windows upgrades, Microsoft’s revenues could suffer greatly if the PC industry cannot rebound and sales of the Surface tablet remain flat, especially now that it doesn’t have the help of its now retired Windows 8 upgrade promotion.