Microsoft Q1 2023: Profits and Windows Down, Xbox and Devices Up

It’s a new fiscal year for Microsoft, and the maker of Windows and Xbox just published Q1 2023 financial results today. Microsoft had first-quarter revenue of $50.1 billion and net profit of $17.6 billion. Revenues are up 11 percent, but net profits are down 14 percent, meaning earnings at Microsoft are down this quarter.

While there were signs of PC decline earlier this year, it’s clear this quarter that the PC is in sharp decline and that has impacted Microsoft’s Windows results. PC shipments saw another big drop in the past quarter: 15 percent, according to IDC. Geopolitical tensions, inflation and ongoing supply chain challenges are all contributing to PC sales problems, in addition to weaker demand.

Microsoft’s Windows OEM revenue, the price PC manufacturers pay to put Windows on machines, fell 15 percent in the first quarter, driven by what Microsoft describes as a “continued deterioration in the PC market.”

Despite the challenges, IDC says shipping volumes “remain well above pre-pandemic levels,” so it’s not all doom and gloom for Windows and PCs just yet.

Microsoft’s Surface devices are still doing well, too. While there were no major new Surface launches in the first quarter, Surface sales are up 2 percent. Microsoft now lists this as “device revenue” rather than just Surface, so it may include other revenue from non-Surface devices as well. Microsoft recently announced new Surface Pro 9, Surface Laptop 5 and Surface Studio 2 Plus devices, which are likely to renew interest in Surface for Microsoft’s fiscal Q2 2023.

Microsoft’s other hardware, Xbox, is up this quarter. Hardware revenues were up 13 percent, in addition to a 3 percent decline in Xbox content and services revenues. Microsoft says this was driven by “decreases in first-party and third-party content, with lower engagement hours and higher revenues, offset primarily by growth in Xbox Game Pass subscriptions.” Overall, gaming revenue at Microsoft grew slightly year over year.

Microsoft again failed to provide an update for Xbox Game Pass subscribers this quarter after the service grew to 25 million in January after the holiday releases of Age of Empires IV, Forza Horizon 5, and Hello infinite.

The European Commission has begun reviewing Microsoft’s Activision deal and has set a tentative deadline of November 8. Microsoft is no longer sharing about the deal, saying last month that it is “in line with the expected regulatory schedule and process, and we remain confident that the acquisition will close in fiscal year 2023.”