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Quarterly Sales Of Microsoft Surface Pro Closing In On $1 Billion

Microsoft reported 25 percent revenue growth for the September quarter, but restructuring costs held down profitability.

Sales of Microsoft's Surface tablet/laptop computers reached $908 million in the company's first quarter with the third generation of the product -- launched in June -- gaining market traction.

"Surface had strong results this quarter, driven by positive customer response to Surface Pro 3," CEO Satya Nadella said Thursday during a conference call with financial analysts to discuss Microsoft's first-quarter financial results. "The product lineup is the right one and customers are responding favorably."

Microsoft reported total revenue of $23.2 billion for the company's first fiscal quarter ended Sept. 30, up 25 percent from the year-ago period.

[Related: Microsoft Mobile-First Cloud Strategy: Improved Tech, More Partners]

Net income was off more than 13 percent to $4.54 billion in the September quarter. The reduced profits were largely due to $1.14 billion in expenses from the restructuring and layoffs in the company's smartphone division announced in June.

Earlier generations of the Surface product, especially those running the Windows RT version of Windows 8, were widely seen as commercially unsuccessful. But Surface has been winning market acceptance more recently, especially with the Surface Pro 3 product. The Surface-related revenue in the quarter marked a 127 percent gain from Surface sales in the same period one year earlier.

CFO Amy Hood, also speaking on the call, said Microsoft expects Surface unit sales to grow sequentially in the current quarter, although she did not provide specific numbers.

"We are excited by Surface Pro 3 performance," Hood said. "Its sales are pacing at twice the rate of what we saw with Surface Pro 2."

She said the product is winning among students, professionals "and, increasingly, enterprises."

Nadella painted a picture of a company generally headed in the right direction both financially and from a product perspective.

"I'm pleased with the progress we are making," he said. "Results are up in every category from commercial, to consumer, to hardware."

Revenue from Microsoft's phone hardware operations totaled more than $2.6 billion as the company reported selling 9.3 million Lumia phones in the quarter. Sales of phones other than Lumia declined during the quarter. Microsoft acquired mobile phone manufacturer Nokia in April for $7.2 billion.

Nadella also touted Microsoft's growing cloud software sales. Commercial cloud revenue grew 128 percent year-over-year, including sales of Office 365, Azure and Dynamics CRM. Office 365 Home and Personal subscribers now total more than 7 million, representing more than 25 percent sequential growth.

Sales of Office Commercial products and services grew 5 percent as customers transition to Office 365, the company said.

Commercial licensing revenue increased nearly 3 percent to $9.87 billion in the quarter. Server products and services revenue grew 13 percent with double-digit growth for the SQL Server database, System Center and Windows Server. Microsoft also reported double-digit sales growth for its Lync, SharePoint and Exchange products. And Windows volume licensing revenue increased 10 percent in the quarter.

PUBLISHED OCT. 23, 2014

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