Microsoft posted revenue of $20.6 billion (£15.7B) in the fourth quarter of its 2016 financial year, a decline of 7 percent year on year. Operating income was $3.1 billion (£2.4B) compared to a $2.1 billion loss in the same quarter last year. Net income was also $3.1 billion, as compared to a $3.2 billion loss, and earnings per share were $0.39.

The full 2016 financial year figures showed revenue of $85 billion (£64.9B), down 9 percent year over year from 2015; operating income of $20.2 billion, up 11 percent; net income of $16.8 billion, up 38 percent; and earnings per share of $2.79, up 42 percent. Those 2015 losses were substantially a result of the $7.6 billion write-down of Nokia's assets. 2016 also included a further, final Nokia-related write-down but this one was a mere $950 million.

The company offers non-GAAP financials wherein all Windows 10 revenue is booked at the point of sale, rather than allocated piecemeal over two to four years (with the exact timeframe depending on the customer type). The revenue deferrals are due to the "Windows as a Service" model wherein support and development commitments for the operating system are an ongoing task that continues after the sale of the software license. The non-GAAP results also change how the company accounts for impairment, integration, and restructuring charges. Under this alternative reporting regimen, revenue for the quarter was up 2 percent to $22.6 billion, operating income was down 3 percent to $6.2 billion, and net income was up 8 percent to $5.5 billion.

As in past quarters, Microsoft is also continuing to provide constant currency guidance to give an indication of what its revenue and income changes would be if the dollar were as weak today as it was this time last year.

Across every product segment, the company reported increased year-on-year growth for the quarter. Cloud businesses—in particular Office 365 and Azure—continued to show the biggest gains, but the fourth quarter was also unusually strong even for Windows revenue.

Microsoft currently has three reporting segments: Productivity and Business Processes (covering Office, Exchange, SharePoint, Skype, and Dynamics), Intelligent Cloud (including Azure, Windows Server, SQL Server, Visual Studio, and Enterprise Services), and More Personal Computing (covering Windows, hardware, and Xbox, as well as search and advertising).

Productivity segment revenue was $7.0 billion, up 5 percent, with operating income of $3 billion, down 5 percent. Commercial Office revenue, incorporating both cloud subscriptions and non-cloud sales, was up 5 percent; consumer Office revenue was sharply up, gaining 19 percent year on year. The company claims that both commercial and consumer customer Office 365 seats are up; commercial users were up 45 percent, year on year, and consumer was up 52 percent to 23.1 million seats. However, operating expenses during the fourth quarter were also up, growing 6 percent due to investments in cloud sales and engineering.

Intelligent Cloud segment revenue was $6.7 billion, up 7 percent, with operating income of $2.2 billion, down 17 percent. The revenue from server products and Azure was up 5 percent, Enterprise Services revenue was up 12 percent. These numbers, however, show just how small Azure currently is. Azure revenue was up 102 percent year on year, with compute usage more than doubling. Server product revenue, by contrast, was flat. As such, the 5 percent growth comes essentially all from Azure, with a back-of-envelope calculation suggesting that Azure's revenue last quarter was just shy of half-a-billion dollars.

On the one hand, this can be spun as an opportunity—there are an awful lot of Microsoft server software sales that can be converted to cloud subscriptions—and on the other it shows just how dependent the company is on traditional on-premises software (both licensed perpetually and on a subscription basis through Software Assurance). Azure is not the company's major cloud business, yet; Office 365 brings in much more money at present. Overall, the company claims a $12.1 billion annualized run rate for its commercial cloud business, but as Steve Ballmer says, annualized run rates, being made up numbers, are "bullshit."

The surprise this quarter comes from the More Personal Computing division. Overall, the division had revenue of $8.9 billion, down 4 percent, with operating income of $1.0 billion, up 59 percent. But the picture here is complex. Windows license revenue was up. The non-Pro Windows revenue, representing consumer sales, was up a substantial 27 percent; this outpaced the moribund consumer PC market and was helped by a skew toward more expensive licenses. The Pro Windows revenue, representing corporate sales, was up 2 percent, reflecting a flat corporate PC market.

Device revenue, however, was sharply down. It fell 35 percent, primarily because phone sales dropped by 71 percent. Surface revenue was up 9 percent, as increased sales of Surface Pro 4 and Surface Book offset declines in revenue from Surface Pro 3 and Surface 3. Over the full year, Surface revenue was $4.1 billion; this is starting to look like a serious venture.

Xbox revenue was also down, dropping 9 percent as the company sold fewer consoles and at lower prices. The only highlight here was the quarter-on-quarter growth in gaming hours (up nearly 13 percent on Xbox One and up nearly 19 percent on Windows 10) and Xbox Live hitting 49 million monthly active users.

Patent licensing revenue was also down, falling 21 percent due to reduced fees on fewer units sold.

Bing, however, was profitable for the full year, and in the fourth quarter its revenue was up 54 percent (or up 16 percent with traffic acquisition costs included) from a combination of both more searches and more revenue per search. Windows 10's greater use and embedding of Bing was instrumental here, with more than 40 percent of Bing searches in June coming from Windows 10 devices.

Those big drops in phone revenue (a decline of $782 million, year-on-year) and Xbox (down $152 million) more than offset the growth in Windows and Bing, hence the overall drop in revenue. But sales, marketing, and development expenses all declined, attributed to the near-total exit of the phone market, and this decline is what produced the growth in operating income.