$1,895 million was returned to shareholders through share repurchases in the quarter, and $2,322 million through dividends. $4,167 million out of $10,099 million in cash flow from operations is a healthy amount of cash to return, and it fits with the now well established activist shareholder creed.
The strength of the company shows, I believe, when you consider that 81% of the quarter's revenues came from Devices and Consumer Licensing ($4,382 million), Commercial Licensing ($10,203 million), and Commercial, Other ($1,902 million).
Even more telling, 95% of the corporate gross margin came from these same three business segments: Devices and Consumer Licensing ($3,906 million), Commercial Licensing ($9,430 million), and Commercial, Other ($475 million).
Despite all the hype around tablets, and "Bring Your Own Device" into the enterprise, Windows and the Office suite are still what most people comfortably use to do their real work in the enterprise. So, Windows Pro OEM revenue grew 19%, as business PC growth in developed markets led the way in the quarter. Non-Pro Windows revenue declined by 15% (9% excluding China), so Windows OEM revenue increased 4% in total. 90% of enterprise desktops run Windows 7 or Windows 8.
The Office 365 nascent franchise now has 4.4 million users, and the company added a million users in the quarter. Making the Outlook.com free version of Office 365 available for iPAD, and engineering it specifically for that platform, was a long overdue step, and the new CEO made it with aplomb. Making Office for iOS 7.1 count for the five device licenses included in Office 365 enhances the value proposition for the product.
Bing's ad revenue was up 38% , and its share of search grew by 170 basis points.
Microsoft's server business, hardware and database, give it a lot of credibility with corporate IT officers. SQL server revenue increased by more than 15% in the quarter.Cloud revenue doubled from a relatively small level, as it has for HP.
The acquisition of Nokia Devices and Services is about to close, and hence the financial comparisons in the coming quarters will be even fuzzier than they are now.
The question and challenge will be "What can Microsoft make of Nokia Devices and Services?" Microsoft continues to really lack a champion for its consumers, whether of Office, XBox, games, tablets and phones. What credibility it has on the corporate enterprise hardware and software sides comes from a different mindset. CEO Satya Nadella came from this business, and he brings lots of easy credibility because he speaks the language of customers and developers in those businesses.
Check out his video presentation at Build 2014. The way he handled questions was relaxed, sincere, and credible to his developer audience. There was none of the ear shattering volume, bluster and rote litany of buzzwords from the Ballmer reign.
I wonder if anyone in the organization can speak for the consumer experience with those same virtues? Apple can charge outrageous prices for their devices for a few reasons: they all work relatively intuitively, the design and functionality of the phones and tablets are clean and present a consistent philosophy, the attention to detail even in the packaging is obsessive, and if there is anything wrong with the consumer's experience with the device or using it, the company stores make it right.
If Nokia is going to be the hardware platform that carries the Windows environment forward into a "Mobile-first, Cloud-first" world then can this be done without suffering the kind of 23% gross margin rates Microsoft is experiencing in its consumer devices now? Can someone, perhaps from Nokia or wherever, inculcate that care of the retail customer to the levels to which the IT and developer customers have been accustomed?
Microsoft has never treated its retail customers well, and it has never provided them with the kind of experience they deserve. A monopolist never acts that way, because it doesn't have to amaze or delight: it merely has to satisfy.
Here was a very simple, but penetrating question for Satya Nadella from an Android third-party developer, "Why should I spend my time and resources developing for Windows?" (paraphrase) Here's the CEO's response: