On Thursday, Microsoft posted its earnings report for Q4 of the 2019 fiscal year. On balance, the legacy technology corporation noted that it’s doing exceedingly well. Thanks to the strong performance of its services segment, the company set a new quarterly earnings record, generating $33.7 billion in revenue and $13.2 billion in net income.
Service Segment Success
The firm behind the Windows operating system experienced its highest growth rates in its services segment, not its products business.
The corporation’s productivity and business processes segment brought in $11 billion, an increase of 14 percent year-to-year. The firm’s Office 365 offerings experienced healthy revenue growth in both commercial (14 percent) and consumer (six percent) iterations.
Microsoft enjoyed a 12 percent uptake in the income generated by its Dynamics customer relationship management software. The corporation even experienced a 25 percent increase in revenue generated by employment social network LinkedIn.
The brand also saw notable gains in its intelligent cloud business. Microsoft’s Azure revenue rose by 22 percent from 2018, and its Enterprise Services earnings grew by four percent. In total, the corporation’s server segment produced $11.4 billion in the quarter ending June 30.
Gaming Business Woes
Despite making healthy gains in its services business, Microsoft’s reporting was not as impressive in its core personal computing business. The segment generated $11.4 billion for the corporation, which represents only a four percent increase year-to-year.
The firm experienced a 14 percent surge in sales of its Surface PCs, as well as nine percent gains in both its Windows OEM and search advertising income. However, the firm’s gaming revenue and Xbox software and sales declined by 10 and three percent respectively. Besides, Microsoft’s Xbox hardware revenue plummeted by 48 percent compared to the same period last year.
The brand’s gaming business fell off a cliff because it’s effectively stuck in limbo. Consumers know that the release of the firm’s ninth-generation video game console is coming soon, so interest in the Xbox One has fallen off.
Furthermore, though the brand won’t wind it down for a few years, its Xbox One product line is now six years old. As such, the console’s $299 base price point and lack of meaningful updates or accessories inspire no consumer urgency.
That said, the company might be able to revive its gaming business with the October launch of its xCloud streaming service.
Funnily enough, it appears that Apple and Microsoft are becoming direct rivals. While the two companies waged war for the home computer market a decade ago, their diverging interests made them contemporaries more than competitors. Indeed, Apple isn’t pursuing the entry-level computing market that Microsoft now dominates. Conversely, Microsoft officially stopped trying to make Windows Phones a thing earlier this year.
Nevertheless, the two Big Tech giants are now locked into a collision course. Earlier this year, Apple signaled that it’s reorganizing itself as a services-oriented business. The company has marked its shift in priorities by entering the streaming video content, banking, and gaming sectors.
Similarly, Microsoft didn’t become a trillion-dollar company this year because of its Windows licensing agreements and Xbox sales. The corporation hit that milestone because its current portfolio includes a high growth server business and several subscription services. The company’s E3 2019 presentation made it clear they believe the future of gaming is in software, not hardware. Like its former nemesis, Microsoft realizes the tech industry is moving away from a hardware-centric paradigm.
In tomorrow’s marketplace, Apple and Microsoft will once again be at odds. But instead of trying to sell computers and MP3 players, the two firms will fight for digital ecosystem dominance.