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Microsoft Announces Q3 FY 2017 Results
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Microsoft Announces Q3 FY 2017 Results

This week, Microsoft announced their earnings for the third quarter of their 2017 fiscal year. Despite missing some expectations in a few segments, Microsoft’s revenue was up 8% to $22.1 billion, and gross margin was up 10% to $14 billion, resulting in a gross margin of 64% for the quarter. Operating income was up 6% to $5.6 billion, and net income was up 28% to $4.8 billion, which resulted in earnings-per-share of $0.61, which is up 30% from the same time last year.

Microsoft Q3 2017 Financial Results (GAAP)
  Q3’2017 Q2’2017 Q3’2016
Revenue (in Billions USD) $22.090 $24.090 $20.531
Operating Income (in Billions USD) $5.594 $6.177 $5.283
Gross Margin (in Billions USD) $14.030 $14.189 $12.809
Margins 63.5% 58.9% 62.4%
Net Income (in Billions USD) $4.801 $5.200 $3.756
Basic Earnings per Share (in USD) $0.61 $0.66 $0.47

Microsoft also reports Non-GAAP results, which report earnings with constant currency reconciliations to equalize the strength or weakness of the USD versus global currencies, as well as Windows 10 revenue deferrals due to it including upgrade rights for the lifetime of the product, so rather than just counting the sale of a Windows license as a lump sum, it is now deferred. Microsoft will be switching to a new revenue standard to count Windows 10 sales up front in the future, but for now their revenue recognition practices require them to defer it. On a Non-GAAP basis, Microsoft earned $23.6 billion in revenue, up 6%, or 7% in constant currency (CC), had a gross margin of $15.5 billion, up 7% or 9% CC, which as a percentage of revenue is 66%, up 1% from a year ago. Operating income for the quarter was $7.1 billion, up 2%, or 5% CC, and net income was $5.7 billion, up 13%, or 16% CC. This resulted in diluted earnings per share of $0.73, up 16%, or 19% CC.

Microsoft returned $4.6 billion to shareholders this quarter, with $1.6 billion in share repurchases, and $3.0 billion in dividends. Microsoft had been buying back shares at an accelerated rate, but in the earnings call, announced they would be moving back to their more historic levels for share buybacks.

This is their first full quarter since the acquisition of LinkedIn, and LinedIn had revenues of $975 million. The cost of the revenue, thanks to amortization of assets from the acquisition, and other costs, was $396 million, and operating expenses from the amortization of assets from the acquisition and other operating expenses for LinkedIn was $965 million, meaning LinkedIn is currently a drag on the operating income of Microsoft at a cost of $386 million this quarter. LinkedIn results will be calculated in the Productivity and Business Process segment, but for now Microsoft is also breaking out the numbers on their own, which isn’t something they always do.

Speaking of Productivity and Business Processes, this segment includes not only LinkedIn, but also Office Commercial, Office Consumer, and Dynamics. Revenue for this segment for this quarter was up 22% to $7.96 billion, with LinkedIn revenues adding 15% to the result since they’ve not been included before. Operating income though dropped for the same reasons, down 7% to $2.78 billion, almost exclusively due to the operating drag of LinkedIn. But despite that, this was still an important quarter for Microsoft, since Office 365 commercial seats grew another 35% year-over-year, and now has over 100 million monthly active users. Microsoft Teams is now a part of this as well, and Microsoft stated they have over 50,000 customers using Teams already, and since it is included with Office 365, that number will likely grow quickly. Office 365 consumer (Personal and Home versions) now has 26.2 million subscribers, which is up 18% year-over-year. Dynamics also had a strong quarter, with revenue up 10% (11% CC), and Dynamics 365 revenue up 81% (82% CC).

Intelligent Cloud, which includes hosted and cloud server products, as well as enterprise services, had $6.76 billion in revenue, up 11% (12% CC) thanks to growth in server products and cloud services, but there was a decline in revenue from Enterprise Services thanks to a drop in Windows Server 2003 support contracts, as more companies finally move off of that version of Windows Server and no longer need to pay for additional support. Operating income for this segment was flat at $2.18 billion (up 3% CC). Azure continues to be a very strong performer for Microsoft, with Azure revenue up 93% year-over-year (94% CC) and Azure compute usage more than doubled in the last year. Server products and cloud services grew 15%, and Enterprise Mobility had its install base grow by over two times for the twelfth consecutive quarter.

More Personal Computing had a revenue decline of 7% to $8.84 billion, due to lowered revenue in phones (which are now at about zero) and a decline in Surface sales. Operating income grew 20% though, to $2.1 billion, and operating expenses declined 11% for this segment driven by lower phone expenses, and Surface launch marketing a year ago.

Surface, as already stated, was down for the quarter, and it was a substantial drop of 26% (25% CC), and Microsoft is attributing this to end-of-lifecycle dynamics, as well as increased price competition from the competition. To put that in plain speak, Surface hasn’t seen a substantial refresh since Surface Pro 4 and Surface Book were unveiled in October 2015, and although the Surface Studio was announced in October, that is a very niche device and it would be unfair to think it would play a big part in sales. Also, their competitors have brought competing devices to market to directly compete against Microsoft, especially with the successful Surface Pro 4, and we’ve seen quite a few direct competitors launched since the SP4 came out. We would expect to see something from Microsoft soon, but the original goal for Surface was to drive the ecosystem to better products, and clearly they’ve almost succeeded too well.

With phone revenue declining $730 million, the revenue of this entire segment took a big hit, but since Microsoft lost money on every phone sold, they are actually coming out ahead here. Phone revenue was down 99% from a year ago, meaning they should finally be able to stop reporting this result. 

Windows did well, with OEM Pro revenue up 10%, and OEM non-Pro declined 1%, which is well ahead of the PC market as a whole. Search revenue was up 8%, and gaming revenue was up 4%, driven by growth in Xbox Live, which now has 52 million active users.

Microsoft Q3 2017 Financial Results (GAAP)
  Productivity and Business Processes Intelligent Cloud More Personal Computing
Revenue (in Billions USD) $7.96 $6.76 $8.84
Operating Income (in Billions USD) $2.78 $2.18 $2.10
Revenue Change YoY +22%, +23% CC +11%, +12% CC -7%, -7% CC
Operating Income Change YoY -7%, -4% CC 0%, +3% CC +20%, +23% CC

It was another strong quarter from Microsoft, and although their hopes of being a player in the mobile market have faded, they are still very well positioned for the future in their cloud business, while at the same time their consumer devices and software continue to outperform the declining PC market.

Source: Microsoft

 

AT20 Giveaway Day 3: Intel Core CPUs, SSDs, & Optane Memory Too
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AT20 Giveaway Day 3: Intel Core CPUs, SSDs, & Optane Memory Too

Good morning everyone! We’re now on day 3 of our 20 day celebration of AnandTech’s 20th anniversary.

After yesterday’s HTC U Ultra giveaway, today we’re back to PC parts, courtesy of Intel. For today’s giveaway the 800lb gorilla has contributed a true silicon sampler, sending us CPUs, SSDs, and even some Optane Memory cache drives to give away to you.

  • 2x Intel Core i7-7700K
  • 2x Intel SSD 600p 512GB
  • 2x Intel Optane Memory 32GB

The AnandTech 20th Anniversary – Intel Giveaway

Intel Core i7-7700K

First up, Intel’s Core i7-7700K needs no introduction. Intel’s flagship consumer CPU is still the chip to beat for all but the most heavily threaded workloads, thanks to the high IPC of Intel’s architecture combined with the equally high clockspeeds afforded by Kaby Lake. The i7-7700K will turbo boost to 4.5GHz, and as this is an unlocked processor, you can should must always overclock it even further.

Core i7-7700K Specifications
  Cores/
Threads		 Base/
Turbo		 IGP L3 TDP
i7-7700K 4/8 4.2/4.5 HD 630 8 MB 91 W

As a reminder, retail box i7-7700Ks do not include a cooler, so along with a compatible motherboard you’ll need a 3rd party cooler as well to complete the ensemble.

Intel SSD 600p 512GB

Second on our list of prizes is a pair of Intel 512GB 600p SSDs. The 600p is from Intel’s mainstream SSD family, combining an Intel-customized Silicon Motion SM2260 controller with Intel/Micron’s own 3D TLC NAND. These are single-sided M.2 2280 drives, so they’ll fit in virtually all M.2-equipped motherboards and laptops. And as one of what’s still a relatively small number of NVMe-capable PCIe 3.0 x4 drives on the market, the 512GB 600p can easily sustain reads over several-hundred megabytes-per-second.

Intel SSD 600p 512GB Specifications
Form Factor single-sided M.2 2280
Controller Intel-customized Silicon Motion SM2260
Interface PCIe 3.0 x4
NAND Intel 384Gb 32-layer 3D TLC
SLC Cache Size 17.5 GB
Sequential Read 1775 MB/s
Sequential Write (SLC Cache) 560 MB/s
4KB Random Read (QD32) 128.5k IOPS
4KB Random Write (QD32) 128k IOPS
Endurance 288 TBW
Warranty 5 years

As Billy Tallis noted in our review of the drive, the 600p “offer[s] peak performance that is as high as promised” but do bear in mind that these are drives meant for consumer systems. So best not to try running your database server off of one.

Intel Optane Memory 32GB

Finally, we have a pair of Intel’s recently-released Optane Memory cache drives. Built using Intel’s newly-developed next-generation 3D XPoint memory technology, Intel has opted to start the consumer rollout of the technology by building cache drives, which maps well to the higher endurance and higher serial performance of 3D XPoint.

Intel Optane Memory Specifications
Capacity 32 GB
Form Factor M.2 2280 B+M key
Interface PCIe 3.0 x2
Protocol NVMe 1.1
Controller Intel
Memory 128Gb 20nm Intel 3D XPoint
Sequential Read 1350 MB/s
Sequential Write 290 MB/s
Random Read 240k IOPS
Random Write 65k IOPS
Read Latency 9 µs
Write Latency 30 µs
Active Power 3.5 W
Idle Power 1 W
Endurance 182.5 TB
Warranty 5 years

It’s important to note that to take full advantage of these drives, you will need a Kaby Lake Core-series processor and a supported chipset, as that’s the only platform to support Intel’s full Optane cache mode. Otherwise the drives can be used in some other systems, but they’d only show up as a small 32GB NVMe drive. According to our resident SSD-sommelier, Billy Tallis, these drives tend to be best paired with something like a Core i3 processor in a lower-end system, to transparently speed up performance on a HDD boot volume.

Finally, as with our other giveaways, today’s giveaway is only open for 48 hours, so be sure to enter soon. However please note that for legal reasons, we’re only able to open these giveaways to residents of the United States.

Good luck to everyone! And be sure to check in Monday for our next giveaway.

Intel Announces Q1 2017 Financial Results: Record Quarter
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Intel Announces Q1 2017 Financial Results: Record Quarter

Today Intel announced their earnings for Q1 of their 2017 fiscal year, and the results were good. Intel delivered record revenue for the quarter, of $14.8 billion, up from $13.7 billion a year ago. Intel is a company that loves their margins, and they were once again over 60% for the quarter, coming in at 61.8%, which is 2.5 percentage points higher year-over-year. Operating income was up 40% to $3.6 billion, and net income was up 45% to $3.0 billion, which resulted in earnings-per-share of $0.61 for the quarter, also up 45% from a year ago. This is even though Q1 2016 was 14 weeks, versus 13 weeks in 2017.

Intel Q1 2017 Financial Results (GAAP)
  Q1’2017 Q4’2016 Q1’2016
Revenue $14.8B $16.4B $13.7B
Operating Income $3.6B $4.5B $2.6B
Net Income $3.0B $3.6B $2.0B
Gross Margin 61.8% 60.9% 59.3%
Client Computing Group Revenue $7.976B -12.6% +5.7%
Data Center Group Revenue $4.232B -9.34% +5.8%
Internet of Things Revenue $721M -0.7% +10.8%
Non-Volatile Memory Solutions Group $866M +6.1% +55.5%
Intel Security Group $534M -2.9% -0.6%
Programmable Solutions Group $425M +1.2% +18.4%
All Other Revenue $42M -35.4% -16%

Intel’s Client Computing Group continued to have gains, with revenue for the quarter up 6% to $7.976 billion. Significantly for Intel, operating income for this segment jumped from $1.885 billion a year ago, to $3.031 billion this year. While we’ve seen the company forced to slow down its movement to smaller processes, the current 14nm node has been well refined and the Kaby Lake processors have been solid performers. The next generation 10nm node is looking very promising though, with Intel claiming 25% better performance and 45% lower power consumption versus Kaby Lake thanks to the density improvements.

The Data Center Group also had gains, with revenues up 6% year-over-year to $4.232 billion, although the growth has slowed somewhat. Operating income for the group was $1.487 billion for the quarter, down from $1.764 billion a year ago. This will be an interesting space to watch with increased competition in both the x86 and ARM space, but Intel will be releasing new Xeon chips as well with a change in branding.

The Internet of Things Group continued to show gains as well, with revenue up 11% year-over-year to $721 million, and up 35% since Q1 2015, so in two years they have seen some substantial growth in this segment.

Non-Volatile Memory Solutions Group had the largest jump in revenue, with revenue up 55% to $866 million. However, this group also saw an operating loss increase to $129 million, compared to a $95 million loss a year ago. This should be an exciting segment to watch though with Intel bringing their Optane products to market, with both the DC P4800X SSD and Optane caching memory. If you haven’t checked out those reviews yet, they are well worth the read, and 3D XPoint definitely brings some advantages even on a Gen 1 product.

Intel’s Security Group is showing its final mention in their earnings, since Intel’s divestiture of the group closed on April 3, 2017, and subsequently it will fall in to the “All Other” category starting next quarter. Revenue for this group was pretty flat, at $534 million, compared to $537 million a year ago. Operating income was up to $95 million though, from $85 million last year.

The Programable Solutions Group, which is Intel’s FPGA segment, had a revenue increase of 18% to 425 million, and an operating income of $92 million, compared to an operating loss of $200 million a year ago.

Finally, the All Other category had revenues of $42 million and an operating loss of $1.082 billion.

Looking towards next quarter, Intel is forecasting revenues of $14.4 billion, plus or minus $500 million, and a gross margin around 62%, give or take a couple of points.

Source: Intel