Microsoft just released the first quarter of its fiscal 2027 financial results. The software maker posted $92.3 billion in revenue and net income of $33.6 billion during the first quarter. Revenue increased 19 percent and net income increased 32 percent.
It’s a new financial year for Microsoft, so the company is changing the way it reports its finances by splitting its business into two segments for the first time. Gone are the previous segments: Productivity and Business Processes, Intelligent Cloud and More Personal Computing. Now it’s just Agents and Infrastructure, and Devices and Consumers.
Agents and Infra, which includes businesses such as Azure, Microsoft 365 commercial and consumer, and server products, accounts for 83 percent ($76.8 billion) of Microsoft’s $92.3 billion in total revenue and is up 25 percent year over year. The big changes to Microsoft’s financial reporting also mean that we will now see the company reveal Azure revenue on a quarterly basis. Azure contributed $33.17 billion in revenue this quarter, up 48 percent year over year.
Devices and Consumer, which includes Windows, Xbox, Surface and Microsoft’s search and advertising businesses, accounts for the remaining 17 percent ($15.5 billion) of Microsoft’s $92.3 billion in revenue this quarter, a decline of three percent.
Windows OEM and device revenue is down 22 percent year-over-year, amid a RAMgeddon crisis that has seen the overall PC market fall by 20 percent in the latest quarter. Microsoft blames the revenue decline on the benefit of Windows 10 ending support over the past year, as well as reduced OEM inventory and a weaker PC market.
Microsoft launched Intel- and Qualcomm-powered Surface Pro 12 and Surface Laptop 8 devices just before its new financial year began, and the company even updated its smaller Surface Pro and Surface Laptop with Qualcomm’s X2 Plus chips during the quarter. Surface prices are higher than ever thanks to RAMgeddon, and it looks like the PC market will be in for a very tough time during Microsoft’s 2027 financial year and beyond.
Microsoft Chief Financial Officer Amy Hood said on the company’s earnings call that she expects Windows OEM revenue to decline again next quarter, around the “mid-30s,” with a decline expected to continue through the 2027 financial year.
Microsoft CEO Satya Nadella also commented on the company’s new hybrid AI push for Windows during the earnings call. “We are executing on our vision of bringing hybrid intelligence to every desktop in every home, making every PC a secure agent box,” Nadella said. “As more capable models are run locally, we see an opportunity to make more intelligence effectively unmeasured.”
Microsoft and Nvidia unveiled a range of RTX Spark laptops earlier this month, including the Surface Laptop Ultra. The laptops ship with up to 128GB of unified memory and are capable of running recent frontier models locally.
On the Xbox side, hardware revenue has once again declined year over year. Xbox hardware revenue is down 14 percent. Xbox content and services, which include Game Pass, were also down 2 percent. Microsoft is yet to provide an update on Game Pass subscriber numbers, after the company last reported it had 34 million subscribers more than two years ago. Xbox’s overall revenue is down 2 percent.
Xbox’s first quarter of fiscal 2027 has been dominated by a “reset” with thousands of layoffs and studio spinoffs. The layoffs are not over yet and it is rumored that more could arrive in November and January. In a memo earlier this year, Xbox CEO Asha Sharma said that “we will return Xbox to player and revenue growth” by the end of fiscal 2027 (which runs through next June).
The goal, as Sharma puts it, is to “scale what works” so that by fiscal 2030 Xbox is “halfway to our long-term daily player goal with sustained double-digit growth in players and engagement and industry-leading margins.” Sharma posted on X that Xbox was “progressing, with much more work ahead.” Sharma also revealed that PC platform revenue has grown by double digits this quarter and that “console sales remain constrained by supply, with more demand than available consoles.”
Hood says Xbox hardware revenue will decline again next quarter, but Xbox content and services revenue is expected to increase by “mid-to-high single digits.” Sharma says Microsoft is “working to put more consoles in the hands of gamers, including through our expanded refurbishment program.”
Microsoft’s cloud revenue was truly the star of the earnings show again this quarter, a phrase I always seem to write every few months. Microsoft Cloud revenue contributed $63.9 billion to Microsoft’s revenue this quarter, nearly 70 percent. This represents a 30 percent year-over-year increase, thanks to strong demand for Azure commercial cloud and Microsoft 365.
Microsoft 365 commercial cloud revenue also grew 18 percent, thanks to higher revenue per user and additional sales of premium options such as Microsoft 365 Copilot, E5, and E7. Microsoft 365 consumer cloud revenue also grew 17 percent, driven by revenue per user growth and subscriber growth of 7 percent.
Nadella also discussed his view of Microsoft’s own AI models on the company’s earnings conference call. “We also continue to move quickly with our proprietary models,” Nadella said. “Our goal is to advance the frontier from cost to outcome, which means delivering capabilities comparable to leading models within three to six months of launch at a fraction of the cost of training, allowing us to pass those cost benefits on to customers.”
Update, October 28: Article updated with comments from Amy Hood, Microsoft CFO, Satya Nadella, CEO of Microsoftand Xbox CEO Asha Sharma.
