Microsoft’s Windows OEM Revenue Fell 10% In FY2013 Without The Windows Upgrade Offer

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Post-PC, indeed. Today Microsoft released its yearly SEC filing, detailing its financial performance on a per-division basis with decent granular breakdown. In addition to the news that the Surface line of tablets brought in a lower-than-expected $853 million in fiscal-year revenue, Microsoft explained its declining incomes from the sale of Windows to original equipment manufacturers (OEMs).

In the year, Microsoft recognized $540 million in deferred revenue stemming from the conclusion of the Windows Upgrade Offer. OEM revenue for Microsoft declined 3 percent in the year. However, if you take out the Windows Upgrade Offer, OEM revenue for Microsoft fell 10 percent in the year.

Selling copies of Windows to Dell, Lenovo and others to ship on their personal computers is the quintessential Microsoft activity, and the company is simply doing less of it. The larger PC market has been in decline, slipping around 10.6 percent in the most recent quarter. And that loss was an improvement on the first quarter’s decline of more than 14 percent.

Microsoft has a dry telling of this fact: “This decrease [in OEM revenue] primarily reflects the impact on revenue of the decline in the x86 PC market, which we estimate declined approximately 9%.” The x86 PC market is the PC market, essentially. Yes, some tablets run on x86 architecture, but that’s a minor quibble.

The 9 percent figure is interesting, as it describes the contraction of the PC market for part of 2012 and part of 2013, given Microsoft’s annoying fiscal calendar. Estimates for the past two quarters describe accelerating decline. I believe our new favorite parlor game shall be entitled: “How Hosed Is The PC Market This Year?”

OEM revenue remains a key income and profit source for Microsoft, but one that is certainly soft. The larger Windows division, however, remains a financial rock: $19.2 billion in fiscal 2013 revenue leading to $9.5 billion in operating income. That’s a damn fine profit margin.

Still, as Microsoft’s new products, such as Azure and Office 365 and Lync begin to post-billion-dollar revenue figures, the center of the company’s gravity continues to slowly drift.

Top Image Credit: Motohiko Tokuriki