Microsoft had an outstanding quarter for Surface and Windows revenue

Microsoft reported its FY22 Q2 earnings this afternoon, and it was a doozy. The company reported overall revenue was $51.7 billion and increased 20% over the same period in 2020.

Under the More Personal Computing division, which includes Windows licensing, Surface, Xbox, and Bing, the company reported a substantial $17.47 billion, a 15% increase of the same period in 2020. Microsoft had anticipated More Personal Computing to bring in between just $16.35 and 16.75 billion during investor guidance last October.

Microsoft’s Surface broke $2 billion this time in 2020. While we don’t have a dollar amount to report (Microsoft stopped sharing those in the previous quarter), it did better than expected with 8% growth for the 2021 holiday season.

Microsoft had predicted much worse numbers during its last investor call, expecting a single-digit decline in Surface revenue, calling out the impact on premium devices due to ongoing supply chain issues.

Microsoft says Surface revenue was driven primarly by Surface Laptop, which is interesting.

Last quarter, Microsoft reported a sharp 17% decline compared to October 2020, due to those supply chain constraints.

Indeed, only recently did Microsoft start running national TV ads in the US for the new Surface Pro 8, suggesting it is finally getting its supply chain back up and running. The company is also finally releasing LTE and business versions of its latest Surface devices, as well as expanding Surface Laptop Studio to other countries like the UK.

Surface Laptop Studio, so far, has only launched in the United States and Canada, but it is expected to launch in 47 other markets in the coming months.

Turning to Windows OEM licensing, Microsoft expected growth this quarter in the “low to mid-teens” in its recent guidance. Today, it reported that revenue was up by 25%, blowing past its expectations.

The news lines up with OEM revenue from more significant PC makers like Dell, Lenovo, and HP, who all beat estimates and set records for their most recent quarters. It also accords with reports from Canalys and Gartner that 2021 was the best year for PC shipments since 2012, even despite a slight dip during the recent holiday season.

During last quarter’s investment call, Microsoft CEO Satya Nadella notes a “structural shift in PC demand” due to the pandemic. Microsoft CFO Amy Hood remarked that Windows OEM revenue was “stronger than expected” due to commercial interest with higher rev per Windows license.

Windows Commercial Products, which includes Microsoft 365, was also up by a healthy 13% compared to year-over-year (YoY).

Search, and news advertising related to Bing and MSN.com had its revenue grow by a whopping 32% with “improved customer advertising spend.”

Finally, Xbox and gaming were also up 8% in revenue YoY with steady growth for Xbox across hardware, games, and services.