Where does Microsoft make money? (Updated 2013)
introduction
As in past years, all information in this report is taken from
Microsoft’s publicly available 2013 10-K filing. Numbers may vary from past reports. When Microsoft moves products between revenue categories, they retroactively adjust the totals for past years so that year-to-year comparisons are accurate. This article uses 2011 and 2012 values as calculated in the 2013 report. All values are in USD.
If you’ve read my past reports, feel free to skip down to the charts. If this is your first time here, let me provide a quick explanation of how Microsoft breaks down its earnings.
microsoft 2013 earnings
Microsoft remained highly profitable in 2013, with solid year-over-year growth in both revenue and operating income.
The Business (Office) division brings in significantly more money than the Windows division (+30% revenue, +70% profit). In fact, nearly half of Microsoft’s 2013 profits came from the
Business division alone.
For the first time ever (to my knowledge), the Windows division was actually 3rd in revenue in 2013, behind both Business and Server/Tools. If trends from the past four years continue in 2014, Server and Tools will pass Windows in not just revenue, but profitability as well.
Regardless of division, the vast majority of Microsoft’s profits come from business and
OEM sales. Consumer-centric divisions (including
XBox, Windows Phone, Bing) are largely irrelevant from a profit standpoint.
Just for fun: in 2012, Apple pulled in double the revenue of Microsoft ($156 billion USD and $74 billion, respectively). Source 1, Source 2.
overview
Microsoft is unique among tech companies for reporting detailed information by product line. Their competitors do not provide such a detailed breakdown; Apple, most notably, is organized around “functional” divisions rather than “product” divisions, making direct financial comparisons between Apple product lines and Microsoft product lines difficult.
This year, Microsoft announced a company-wide reorganization plan that would bring them closer to
Apple’s structure. Many (myself included) have doubts about this resulting in meaningful changes to Microsoft’s overall structure and performance, but there is one area the reorganization is almost certain to impact: financial reporting. Sadly, this means that 2013 may be the last year I am able to provide detailed earnings charts by product division.
There are many theoretical benefits to organizing a company by “function” instead of “products.” One benefit is reduced infighting between product groups, a known problem for Microsoft. Another benefit is the ability to hide losses due to underperforming products. Microsoft had its share of those in the past year, most notably its billion-dollar loss on the Surface RT line of tablets, the impact of which can be seen in the charts below.
microsoft total revenue and operating income (june 2012 – june 2013)
Total Revenue: $77,849,000,000
Operating Income: $26,764,000,000
Total Revenue is the total amount of money Microsoft takes in from normal
business operations.
Operating Income is calculated as “
Operating Revenue –
Operating Expenses”. In other words, Operating Income is the profit made from normal business operations. (A more detailed definition is available from
Investopedia: “Operating income would not include items such as investments in other firms, taxes or interest expenses. In addition, nonrecurring items such as cash paid for a lawsuit settlement are often not included. Operating income is required to calculate operating margin, which describes a company’s operating efficiency.”)
Operating Income is particularly important when looking at a company like Microsoft. Certain Microsoft divisions take in a great deal of money, but they also require much higher costs to operate. Thus it is relevant to look at not just how much money a certain division brings in, but at how efficiently that division generates its revenue.
microsoft revenue and operating income by division (june 2012 – 2013)
Microsoft products (and earnings) are divided into five divisions: Windows, Microsoft Business, Server and Tools, Entertainment and Devices, and Online Services. The types of products and services provided by each segment are as follows.
- Windows – Windows operating system, Windows-related web services (including Outlook.com and SkyDrive), Surface RT and Pro devices, and Microsoft PC hardware products. 65% of Windows Division revenue comes from OEM sales of Windows.
- Microsoft Business – Microsoft Office (including Office Web Apps and Office 365), Microsoft Exchange, Microsoft SharePoint, Microsoft Lync, Yammer (newly acquired in 2012), Microsoft Office Project and Office Visio, and Microsoft Dynamics ERP and CRM. As you’d expect, 85% of Microsoft Business revenue comes from businesses.
- Server and Tools – Windows Server operating system, Windows Azure, Microsoft SQL Server, Windows Intune, Windows Embedded, Visual Studio, System Center products, Microsoft Consulting Services, and Premier product support services. 80% of Server and Tools revenue comes from direct product sales via volume licensing, OEMs, and retail packaged products.
- Entertainment and Devices – Xbox 360 console, games, and accessories (e.g. Kinect), Xbox LIVE, Windows Phone, and Skype.
- Online Services – Bing, Bing Ads, and MSN.
- (Note: these divisions are pretty much identical to 2012, with the exception of Microsoft’s $1.2 billion purchase of Yammer and its corresponding addition to the Microsoft Business division.)
微軟上季暴賺近2000億
Xbox、雲端軟體銷售佳 激勵營收創歷史新高
受惠於Xbox、雲端軟體銷售佳帶動，微軟（Microsoft）2014年度第2季（2013年10~12月）營收年增14%，創新高245.2億美元（約7453億元台幣），稅後純益達則年增2.8%至65.6億美元（約1996億元台幣），每股純益0.78美元，均超越預期，激勵周四盤後股價大漲5.5%。
在Xbox One及網路軟體 Azure 和 Office 365 銷售帶動下，微軟上季營運表現優於市場分析師預估營收目標237億美元、每股純益0.69美元。
盤後股價大漲5.5%
微軟財務長胡德（Amy Hood）表示，微軟對上季業績感到滿意，業務中需要改進的領域已經逐漸起色。胡德指的領域，主要是Surface平板電腦銷售。微軟未公布Surface實際銷量，僅表示上季銷售額8.93億美元（約272億元台幣），季增1倍，連2季成長。微軟硬體銷售除Surface平板電腦銷售亮眼外，電玩遊戲機Xbox系列更在聖誕銷售旺季創下佳績。微軟公布，上季Xbox遊戲機銷量達740萬台，其中Xbox One銷量約390萬台、Xbox 360銷量約360萬台。儘管個人電腦（Personal Computer，PC）市場下滑仍小幅衝擊微軟上季業績。微軟表示，針對PC的Windows系統銷售上季減少3%。
企業部門獲利表現佳
胡德稱，大企業對個人電腦的需求狀況優於消費者，此對微軟是有利的，微軟從價格較高企業用PC獲益更多。微軟企業部門上季營收成長9.9%達126.7億美元（約3854億元台幣）；微軟毛利3分之2來自企業端產品。
微軟執行長鮑默（Steve Ballmer）表示，「微軟企業部門持續有優良表現，設備與消費者產品在聖誕銷售旺季期間銷售也有好表現。微軟不斷給用戶帶來高品質體驗的設備與服務方面投資，這讓微軟未來營運更具成長潛力。」微軟儘管端出亮麗業績報告，卻仍然對於鮑默繼任者隻字未提，這也引發市場疑慮。鮑默去年8月宣布，將在12個月內退休。
Google第四季獲利漲三倍，Google 與 Microsoft 收入是不同的
Google公司去年第4季營收優於預期，獲利也大幅成長，主要拜廣告部門表現亮眼之賜。
Google 30日公布，去年第4季營收較一年前成長17%至168.6億美元，優於分析師預期的167.5億美元，淨利則從28.9億美元增至33.8億美元，不計股利等項目的每股盈餘為12.01美元，但不如外界預期的12.2美元。
Google執行長佩吉在法說會中表示：「我們再度以強勁成長的表現為2013年畫下句點。」Google同日宣布將配發沒有投票權的C股作為股利，回應股東的股票分割要求。該股30日盤後躍漲近4%。
Google表示，上季主要受惠於年底假期品牌業者和零售商的強勁需求，國際市場的線上廣告也穩健成長，其中線上廣告付費點擊次數激增31%，但每次點擊的平均收入下滑11%。
行動廣告成功拉抬Google的廣告點擊次數，但行動廣告營收通常較低。Google財務長皮切特承諾，完成
出售摩托羅拉行動後，將持續發展消費電子硬體部門。摩托行動部門上季營業損失，從一年前的1.52億美元擴大至3.84億美元。
Apple, Microsoft, Google, Amazon 營收獲利方向不同
Ed Bott at ZDNet.com wrote a post with the title: Microsoft, Apple, and Google: where does the money come from? He looked at the quarterly reports of these companies (links to sources in the article) and displayed a pie-chart of the revenue mix for each of them. Inspired by that, I added a fourth company – Amazon (source: 10-K for 2011) – and aggregated those pie-charts into one graphic.
All four are large consumer-oriented technology companies; like millions of customers, I use many of their products and services every day. They each operate with different businesses models:
- Microsoft: Software
- Apple: Hardware
- Google: Advertising
- Amazon: Retail
Yet as a consumer I rarely think about these differences. All of them use state-of-the-art technologies like cloud-computing and mobile devices to achieve integrated end-to-end experiences geared to increase revenues in personal computing (Microsoft), smart mobile devices (Apple), online search (Google) or shopping (Amazon). And arguably all of them derive major competitive advantage from their software, such as Apple’s iOS which introduced the touch interface.
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| If Microsoft learn from Steve Jobs about "think different", it will be different and more profitable |
Perhaps most surprising is Google’s almost singular reliance on advertising, which makes it a very different business model. They offer all their technology for free – from search to mapping to operating systems and social media – to grow and retain online attention as enabling condition for advertising revenue. For a business this big the near complete dependence on one source of revenue is unusual; perhaps its time for Google’s leadership to seriously consider a diversification strategy? Without it Google is arguably more prone to disruption (such as from Facebook) than the other companies. Speaking of disruption: Apple derives almost 3/4 of its revenue (73%) from
iPhone and iPad, neither of which existed 5 years ago. As Ed Bott points out, those two products now drive an astonishing $33.5b revenue per quarter!
To compare the companies by their absolute numbers, here is a bar chart of market capitalization, revenue and profit: (all in billions of Dollars and for Q4 2011, market cap as of 2/3/12)
Market cap of these four companies combined is approaching $ 1 trillion. Much has been written about the differences in market valuations relative to revenue and most importantly profit. The markets undervalue Apple and overvalue Google and Amazon. Let’s compare these dimensions (and number of employees) in the following radar plot:
The plot shows the relative performance of all with the highest in each dimension normalized to 100%. Amazon shows by far the smallest profit in the last quarter. Given it’s retail nature, it’s profit margins have always been smaller; and CEO Jeff Bezos has long emphasized the strategy of investing in future growth at the expense of present profits. Microsoft
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| The iPhone 5S Is The Latest And The Best Selling, Brand Power Is Important
For Users In Emerging Countries |
continues to enjoy very solid profit margins in a large, well diversified business. Google has incredible talent and for now is the undisputed king of online advertising. But Apple leads in all three factors, and it achieves 2x Microsoft’s results with less than half the number of employees! Apple’s profit is 1.5 times that of the other three combined! And it makes more than 60% of the profit with less than 20% of the employees. In fact, Apple’s market capitalization is now higher than $10m per employee! It must feel pretty special to be one of them these days…
分析
- Microsoft 生意在 server 及 business 部門成長越來越大且獲利持續成長，意味 Win 8 功能不完全符合需求及定價過高；
- 從獲利持續成長看 Microsoft Windows 並沒有這麼負面，最大問題是 Windows OS 過於龐大、未考慮太多使用者之網路應用之需求、許多功能速度緩慢如檔案搜尋等等；
- 其實只要讓 Microsoft Office 等產品可建立網路應用之content 庫，直接讓 Skydrive 可以存網路搜尋到之content 庫，Office 等產品可直接用，就可以讓 Office 等產品立於不敗之地；
- 若 Microsoft 可以思考 Steve Jobs 的 “ Think Different ” 及加強server 及 business 等各部門產品之客戶需求了解，應該可以讓 Microsoft 生意在成長許多，不需要一味模仿 Google 及 Apple Inc., 在 Tablet 及 Smart Phone 策略；
