Microsoft’s Devices and Consumer segment posted double-digit growth
Key takeaways for investors from Microsoft’s 1Q15 earnings review (Part 2 of 14)
Microsoft’s Devices and Consumer segment
The Devices and Consumer (or D&C) segment of Microsoft (MSFT) develops, markets, and provides support products and services designed to entertain and connect people and increase their personal productivity. It also provides task simplification and enables advertisers to connect with audiences. It includes the following:
Licensing comprised of Windows OS, including all original equipment manufacturer (or OEM) licensing and other nonvolume and academic licensing
Licensing of Microsoft Office and Windows Phone, including related patent and other licensing
Hardware that includes Xbox gaming, entertainment consoles accessories, video game royalties, Xbox Live subscriptions, and PC accessories
Microsoft’s D&C segment registered 47% growth, chiefly contributed by Nokia’s acquisition. The D&C segment revenue stood at $10.96 billion, an increase of 47% on a quarter-over-quarter basis. This segment includes Nokia’s handset business that contributed $2.6 billion to the segment’s revenue. The company stated that its Lumia phones sold 9.3 million units in Q1 2015.
If Microsoft continues to post positive results, it will benefit exchange-traded funds (or ETFs) like RAFI Fundamental Pure Large Growth Portfolio (or PXLG) and Technology Select Sector SPDR (or XLK), which have significant exposure to the company.
Microsoft lags significantly behind Google and Apple
Through the acquisition of Nokia, Microsoft got access to Nokia’s hardware business. However, it lags significantly behind Google’s (GOOGL) Android and Apple’s (AAPL) iOS. According to International Data Corporation (IDC), iOS and Android OS were the only two platforms to witness growth in the second quarter of 2014, as the above chart shows. Apple dominates the high-end range of handsets market priced over $400. Windows OS has been made available to a broader range of computing devices, priced below $200 to increase its adoption and acceptance in the market. Microsoft Windows Phone significantly lags behind iOS and Android. Windows OS licensing has usually been a drag on the segment’s growth owing to softness in the consumer PC market. Lower average selling prices of Windows Phone, however, have been offset by increased overall market penetration.
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