Microsoft Q2 2016 earnings: Lumia sales decline while Surface surges

Patrick O'Rourke

January 28, 2016 6:21pm

Today, Microsoft announced its fiscal Q2 2016 results, noting that it earned $6.3 billion USD in net income and $25.7 billion USD in revenue in the three months ending December 31st, 2015.

As predicted, Microsoft’s Lumia line continue to struggle, selling just 4.5 million devices in the quarter. On the other hand, its Surface laptop/tablet hybrid, along with cloud and server growth, helped the company balance the revenue lost from offering Windows 10 to customers for free.

Microsoft says sales of the Surface Book and the Surface Pro 4 played a significant role in driving overall Surface sales to a 29 percent increase and revenue of $1.35 billion USD. On the smartphone side of things, Microsoft’s Windows Phone revenue fell 49 percent year over year. The company’s 4.5 million Lumia smartphones sold in the quarter compared to 10.5 million during the same period a year ago.

Despite Windows 10 debuting just 10 months ago, Microsoft still experienced a six percent decline in sales through its OEM partners. However, this fall isn’t as negative as last year’s 13 percent decrease.

On the gaming side of things, Microsoft says that its Xbox Live monthly subscriber user base grew 30 percent year-over-year to 48 million. However, Xbox hardware revenue declined because of lower Xbox 360 sales, though the company did not provide specific numbers. Microsoft also did not reveal how many Xbox One consoles it sold this quarter.

Office 365 revenue grew 70 percent and the platform’s consumer subscribers increased to a total of 20.6 million. The company’s cloud based service revenue grew 10 percent and its Azure revenue increased 140 percent.

  • weetigo

    Not really a ‘decline’, as Windows Phone revenue plummeted by 53%–that’s a sign of complete failure. Windows Phone is dead until the Surface Phone.

    • danbob333

      They tried several versions of Pocket PC, then Windows Mobile, Windows Phone, and then Windows 10.
      Every single time, they throwed away their previous customers by not offering any update to the new version, often even making applications 100% incompatible. Every single time, they announced their new OS as a savior. The Surface Phone will fail just as badly as Windows Phone.

      It’s too late for Microsoft and Blackberry. They lost. People don’t trust them anymore.

    • MassDeduction

      Your suggestion that with “Windows 10… they throwed [sic] away their previous customers by not offering any update to the new version, often even making applications 100% incompatible,” is incorrect. Windows 10 runs great on the Lumia 920, the very first Windows Phone 8 handset released. Yes, they made that mistake with the transition from Windows Mobile to Windows Phone, and from Windows Phone 7 to Windows Phone 8. But the transition from WP8 to Windows 10 is going seamlessly, starting with most Windows phones released from late 2012 onward. I’m running Windows 10 Mobile on my phone and I’m able to run many Windows Phone 8 and Windows Phone 7 apps on it too (though, in fairness, you said in some cases 🙂 ).

      As for the Surface Phone… when the Surface launched Windows tablets had about 2% marketshare. Everyone said that they were too late to the game, making many of the same point you make in your comment. Now Windows tablets are up to 12% marketshare and climbing. And that’s 12% of units, Windows tablets are far greater than 12% of the market in total dollars spent on tablets. There aren’t too many $2000 Android or iOS tablets, but they do go that high for Windows which helps pull up the average. Time will tell whether a Surface phone can disrupt the market as much as the Surface tablets did, but it’s worth putting things in perspective (and, in the case of the transition to Windows 10 phones, correcting misinformation).

  • Tom Adams

    I think microsofts only hope on the phone front is to create a phone that will run full windows that you can hook a keyboard and display to if you wanted to. Like a mini surface as a phone. Too bad the battery life would likely be atrocious

    • MassDeduction

      Presumably it would be docked to keyboard/monitor/mouse over USB-C and that would charge the phone when docked. If you were docking it a lot, battery life could be quite acceptable. The CPU would step up when docked, and step down when not. And rumour is this is exactly what they’re working on.

  • St. Misery

    4.5 million is way better than the 800k or so BlackBerry moved in their last quarter. However, Microsoft should consider revamping their phones. As much as I dig the lumia line, the majority are not embracing the design style, which hadn’t really changed since they launched back in 2011.

    • Rumble and Sway

      Surface Phone later this year could be the ticket.

  • AndroidRootGuy

    Q2 2016 ?? Did someone travel back from future.. or should we start to start to buy up MS shares? 🙂

    • Ryan

      They report on fiscal year, so FY2016 actually starts in 2015.

  • Ben S

    I like Windows Phone OS, but so disappointed by the last few years. Effectively scrapping whatever good will Nokia Lumia had, and lately coming out with the nice but unspectacular 950’s. A name change to ‘Surface Phone’ doesn’t seem like enough.

    • MassDeduction

      A Surface phone won’t be just a name change, in the same way that Surface tablets weren’t just a rebranding of earlier Windows tablets. They’ve said they won’t release a Surface phone unless and until they have a market-disrupting product, in the same way the Surface line has disrupted the tablet market. They’ll keep releasing Lumias until they have something that’s really different, and only at that point it might get the Surface branding.

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