5 Takeaways From Microsoft’s Q2 Earnings

“Overall, early Copilot for Microsoft 365 users were 29 percent faster in a series of tasks like searching, writing, and summarizing.

“Two months in, we’ve seen faster adoption than either our E3 or E5 suites as enterprises like Dentsu, Honda, Pfizer all deploy Copilot to their employees.”

Copilot had initially only been available to large enterprises buying huge batches of licences, but it was opened up to SMBs earlier this year.

Devices Sales Decline as Focus Changes

One of the few areas of Microsoft’s business to see a decline in the quarter was devices, with sales down nine percent year on year.

This decline was, however, softer than Microsoft had predicted when reporting on the previous three-month period – which CFO Hood attributed to “stronger execution in the commercial segment”.

She explained that Microsoft had expected revenue to decline in the devices segment as the vendor turned its attention to higher-margin products.

Hood highlighted devices as just one segment that has contributed to margin improvements, largely because of the impact of AI on Microsoft’s own workforce.

There’s also been really good work put in by many teams on improving the gross margin of the products,” she said.

“We talked about it with Office 365. We talked about it in Azure Core. We even talked about it across our devices portfolio, where we’ve seen materially, improvements over the course of the year.

“When you kind of take improvements at the gross margin level, plus this consistency of re-pivoting a workforce toward the AI-first work we’re doing without adding material number of people to the workforce, you end up with that type of leverage.

“We still need to be investing, and so the important part [is to] invest toward the thing that’s going to shape the next decade and continue to stay focused on being able to deliver your day-to-day commitments.”

Best of the Rest

Of course, there are huge parts of Microsoft’s portfolio that are not connected to the unified communications and collaboration space.

Xbox and gaming received more attention than usual, largely because of Microsoft’s reworked Activision Blizzard acquisition that has finally been given global approval.

Xbox content and services revenue was up 61 percent – 55 points of which was attributed to the takeover.

Search and news revenue – which is driven by Bing – was up eight percent (excluding traffic acquisition costs) while Windows and Windows OEM sales were up nine percent and 11 percent respectively.

Sales for Dynamics 365 rocketed 25 per cent but Microsoft warned that bookings growth was hit by weaker demand for new business, primarily in CRM and ERP workloads.