prod_ArcTouchSurface_WebOne of the built-in benefits of Microsoft’s traditional software business has been the giant profit margins. In its quarterly earnings report today, for example, the company’s commercial licensing segment (including sales of Windows and Office to businesses) had a gross margin of $8.8 billion on revenue of $9.5 billion. That’s more than 90 percent.

But Microsoft is expanding further beyond software and moving into hardware with its Surface tablets, supplementing the company’s Xbox hardware and, on a smaller scale, keyboards and mice. And this is just the start: The acquisition of Nokia’s smartphone business will make Microsoft much more of a hardware company.

As part of Microsoft’s new financial reporting segments, the company today gave a detailed glimpse of its hardware business as a standalone unit. The company’s Devices and Consumer Hardware segment, which includes the Xbox and Surface, posted revenue of $1.49 billion, and a gross margin of just $206 million. That’s around 14 percent.

It’s incredible how much has changed at Microsoft over the past year, but this is a big one. Here’s a chart putting the numbers in perspective. Also see our earlier post on the company’s earnings.

 

Comments

  • john

    I’m not seeing how the graph supports the headline. Doesn’t it really show how small the contribution from hardware actually is?

    • http://geekwire.com Todd Bishop

      You’re right — It should probably say “Microsoft’s financial results show how hardware is reshaping its business.” (In fact, that may have been what I had originally when drafting this.)

      The broader point is that, while hardware is a small part of the company right now, that will change rapidly, especially as Microsoft absorbs Nokia. That’s when Microsoft’s business really gets reshaped, and is less profitable as a percentage of revenue. But we’re able to see the beginning of that trend in the actual results starting this quarter, because Microsoft is breaking out the hardware segment in its financials.

      Anyway, good point. Thanks.

      • John

        Todd – respectfully still disagree that hardware will reshape the financials. Nokia’s devices and services revenue last quarter was 3.72B. Even if virtually all of that was hardware and MS owned Nokia the combined Nokia + Microsoft hardware revenue would be dwarfed by revenue from other sources.

  • Alastair Alas

    Microsoft’s financial results show how hardware is reshaping its business http://tiny.cc/ncyh5w

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