Microsoft has posted the results of the third quarter of its 2018 financial year, running up until March 31, 2018. Revenue was $26.8 billion, up 16 percent year on year; operating income was $8.3 billion, up 23 percent; net income was $7.4 billion, up 35 percent; and earnings per share was $0.95, up 36 percent.

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). This reporting structure has been retained even though the Windows division has been reorganized with responsibilities split between different groups.

The company also continues to report numbers from LinkedIn both as part of the Productivity group and independently. Microsoft has now owned LinkedIn for a full year, enabling for the first time year-on-year comparisons. LinkedIn revenue was $1.3 billion, up 37 percent, with a cost of revenue of $0.4 billion, up 11 percent, and operating expenses of $1.1 billion, up 19 percent. This produces an operating loss of $0.25 billion, which is 35 percent lower than it was for the same quarter last year.

The productivity group posted revenue of $9 billion, up 17 percent year on year. Operating income was $3.1 billion, a rise of 23 percent. This revenue growth was driven by LinkedIn and Office 365. Commercial Office 365 revenue was up 42 percent. This growth came from a 28-percent increase in users—now at more than 135 million per month—combined with higher revenue per user. By contrast, traditional Office product revenue was down 15 percent, reflecting the shift to cloud services. Taken together, Office commercial revenue was up 14 percent. Consumer Office revenue was up 12 percent on the back of increased subscribers. Microsoft now has 30.6 million consumer Office 365 subscribers. Dynamics revenue was also up 17 percent, with a 65-percent increase in Dynamics 365 subscription revenue.

Cloud group revenue was $7.9 billion, up 17 percent year on year, with operating income of $2.7 billion, an increase of 24 percent. Revenue grew in all three segments: product revenue, cloud revenue, and Enterprise Services. Azure revenue was up 93 percent, server product revenue was up three percent, and Azure "premium services" revenue was up by "triple digits" for the 15th quarter in a row. Enterprise Services revenue grew by eight percent.

A mixed bag for Windows

More Personal Computing revenue was $9.9 billion, up 13 percent, with operating income of $2.5 billion, up 24 percent. Windows, gaming, Surface, and search all grew. The Windows story was a tale of two markets. Corporate-oriented OEM Pro revenue was up 11 percent on the back of a stronger corporate PC market. Consumer revenue, however, was down eight percent, below the general decline of the PC market, due to a shift to lower-priced products. Windows volume license and cloud services revenue was up 21 percent.

Gaming revenue was up 18 percent to $2.3 billion, thanks to Xbox software and service revenue being 24 percent higher. There are 59 million monthly active users of Xbox Live, up 13 percent on last year. Search revenue was up 16 percent, excluding traffic acquisition costs, with a mix of higher revenue per search and more searches.

Finally, Surface revenue was up a healthy 32 percent year on year, to $1.1 billion. This growth reflects the better lifecycle positioning of the Surface line; this time last year, the product range was looking very long in the tooth and in need of an upgrade. This certainly represents an improvement, putting it back above a billion dollars a quarter, but it still leaves the business in a strange position, hovering around the $1 billion-per-quarter mark for several years. Microsoft is doing just enough to keep Surface at this level but seems to be doing little to enter new markets or offer new form factors to push it beyond this level.

Overall, the results represent a solid quarter, though, as ever, they leave certain questions unanswered. In particular, Microsoft continues to offer growth figures for Azure without providing any information on what the revenue actually is, a decision that makes properly comparing Azure with its big competitor, Amazon Web Services, impossible.