FY22 Q1: Microsoft Surface rev drops 17%, while Windows is up 10% with ongoing chip shortage

Surface Pro 8 RearSource: Daniel Rubino / Windows Central

Microsoft has published its FY22 Q1 numbers hitting $45.3 billion in overall revenue and (again) beating expectations of between $43 and $44 billion.

The More Personal Computing division’s results were mostly very positive, with overall revenue at $13.3 billion and up 12% year-over-year. Here’s how it breaks down.

  • Windows OEM revenue increased 10%
  • Windows Commercial products and cloud services revenue increased 12% (up 10% in constant currency)
  • Xbox content and services revenue increased 2% (relatively unchanged in constant currency)
  • Search and news advertising revenue excluding traffic acquisition costs increased 40% (up 39% in constant currency)
  • Surface revenue decreased 17% (down 19% in constant currency)

The one sore spot is Surface revenue, which had a sharp decline of 17% compared to last year. However, this was expected as during the FY21 Q4 earnings call Microsoft gave guidance noting it expected “reduced revenue in the low teens.” However, 17% is the high teens, suggesting the impact due to “ongoing supply chain issues” was more significant than anticipated.

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Incidentally, Microsoft stopped reporting actual Surface revenue in dollar amounts. Instead, it is only revealing percent changes in Surface income.

Microsoft is in a precarious position for component supply for its Surface business. It only makes small chip orders through Intel and AMD putting it at the bottom of the list compared to the big three (Lenovo, Dell, and HP), prioritizing bulk orders with larger contracts.

While Microsoft just launched Surface Pro 8, Surface Laptop Studio, Surface Go 3, and Surface Duo 2, those were only a few weeks ago with limited supply in a very narrow set of markets, suggesting these numbers are primarily about existing (and older) Surface products.

Windows OEM rev being up is a good sign, although even there, Microsoft observes, “continued PC demand impacted by supply chain constraints.” That translates to it could have sold even more licenses to its OEM partners if those partners didn’t have their own issues producing and shipping new laptops and PCs.

It is also worth noting that search and news advertising related to Bing and MSN.com had its revenue grow by 40%, which is another good sign that MSN and Bing are doing quite well for the company.

Finally, Microsoft Xbox FY22 Q1 revenue also went up 16% citing Xbox Series X|S and Game Pass.

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