Microsoft Earnings A Mixed Bag for Windows Phone

During the Microsoft earnings call yesterday, it became apparent that for Windows Phone, the earnings were a mixed bag.  However, if you dive in a little deeper it will start to  make sense what is going on with their earnings and why there is no need to jump on the panic button just yet as a Windows Phone user and fan.

First, let’s take a look at the good news.  In the last quarter which ended in September, Microsoft globally sold 9.3 million Lumia devices.  This up over 5% from the same quarter last year and clearly indicates things are going in the right direction.  A nearly complete refresh of the phone lineup, significant marketing and market expansion has all contributed to this growth and while we don’t know the specific numbers for specific markets, it is an indicator that Microsoft is making gains.

For Microsoft, this translated into $2.6 billion in revenue from Windows Phone.  That’s an impressive number and represents 11% of the total revenue the company generated last quarter of $23.2 billion.  This is very much a positive.

But let’s all take a dose of reality with this number.  Apple sold 10 million iPhone 6 units in its debut weekend.  There is a reason I call Windows Phone the Little OS That Could.  It is little, very little in the overall market as I’ve shared in the past.  There is along way to go, a lot of mind and market share to capture but things are pointing in the right direction.

Now let’s take a look at the bad news – at least on the surface.

While there was growth in the overall numbers of Lumia devices, revenue was down 46% when you do a year-over-year

Nokia Lumia 1320
Nokia Lumia 1320

comparison.  At first blush this looks horribly wrong.  How can you have growth yet show a massive downturn in profitability?  Microsoft’s state on it during the call was that they had a “Higher mix of low royalty devices”.  What does that really mean?

Remember that Microsoft made the strategic decision earlier this year to give away the Windows Phone license to OEMs on devices 9″ and smaller.  They did this to attract more OEMs to the platform but also to level the playing field against Google.  It worked in that there was a nice increase in Windows Phone device sales over last year.

Picture coming together now?  Basically the growth can, in part at least, come down to the fact that Microsoft is giving away Windows Phone licenses but that means revenue is impacted.  Hard to get revenue from $0.  This is why there shouldn’t be any panic.

Overall Windows Phone fans should have confidence in where Microsoft is taking the platform.  Clearly it is growing for them and at a good rate.  They in effect are funding that growth and encouraging it by giving away the license.  This short term activity really means that the company is looking at the long term game and they know that they can make up for this in other ways such as revenue from Bing, the Windows Phone store and other sources.

You can read the complete Microsoft earnings report on their Investor website at this link.

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