How Microsoft Makes Money: Personal Computing, Cloud Services

Microsoft Corp. (MSFT), one of the world’s biggest tech companies, sells personal computing devices, cloud systems and services, software, and other products. With products geared toward both consumers and businesses, Microsoft competes in a broad range of industries against companies including Apple Inc. (AAPL), Amazon.com Inc. (AMZN), International Business Machines Corp. (IBM), and Oracle Corp. (ORCL).

Key Takeaways

Microsoft sells computing devices, cloud systems and services, software, and other products to consumers and businesses.
The company’s Intelligent Cloud segment is the largest source of profit as well as the fastest-growing.
The COVID-19 pandemic has had positive impacts on certain aspects of Microsoft’s business, including its cloud business and gaming platform.
Microsoft announced an increase to its quarterly dividend and a new share buyback program in mid-September.

Microsoft’s Financials

Microsoft announced in late July financial results for its 2021 fiscal year (FY), which ended June 30, 2021. Net income rose 38.4% to $61.3 billion. Annual revenue expanded 17.5% to $168.1 billion. Microsoft uses operating income as its profit metric for gauging the performance of its individual business segments. Operating income for the year grew 32.0% to $69.9 billion.

Microsoft noted in its annual filings that the COVID-19 pandemic had an impact on its business operations and financial results in FY 2021. The company saw an increase in demand for cloud usage as the pandemic accelerated the digital transformation for many businesses. Microsoft also experienced continued demand for PCs and productivity tools as well as strong engagement with its gaming platform among the rise of remote work and people sheltering at home.

Microsoft’s Business Segments

Microsoft divides its business into three reportable segments, breaking out results by both revenue and operating income: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing. These segments are categorized according to both product type and customer demographic. Productivity and Business Processes, for instance, includes products across multiple platforms and devices relating to productivity and communication. And More Personal Computing focuses on products designed with end-users, developers, and IT professionals in mind.

Productivity and Business Processes

Microsoft’s Productivity and Business Processes segment includes a portfolio of products designed to enhance corporate productivity, communication, and information services. One of its major products is Microsoft’s Office software suite, including both the Commercial and Consumer divisions. The segment also includes business solutions products such as Dynamics as well as the professional networking site, LinkedIn.

In FY 2021, Productivity and Business Processes generated $53.9 billion in revenue, comprising 32% of Microsoft’s total revenue. This amounted to an increase of 16.2% from the previous year. Operating income for the segment grew 30.1% to $24.4 billion in FY 2021, accounting for less than 35% of the total.

Intelligent Cloud

The Intelligent Cloud segment comprises all of Microsoft’s public, private, and hybrid server products as well as cloud services for business. These include Microsoft Azure, SQL Server, Windows Server, GitHub, Enterprise Services, and more.

For FY 2021, Intelligent Cloud generated $60.1 billion in revenue, accounting for almost 36% of total revenue. Up 24.2% compared to the prior year, Intelligent Cloud was the fastest-growing revenue segment for the year. It was also the fastest-growing segment in terms of operating income, which was up 42.6% to $26.1 billion. Intelligent Cloud operating income accounts for just over 37% of Microsoft’s total operating income, making it the most profitable of the company’s three segments.

More Personal Computing

Microsoft describes its More Personal Computing segment as consisting of products and services aiming toward putting “customers at the center of the experience with our technology.” The Windows operating system, Surface device, and gaming products are all included in this segment.

In FY 2021, More Personal Computing generated $54.1 billion in revenue, comprising about 32% of total revenue. While revenue grew 12.1% for the segment, operating income rose 22.2% to $19.4 billion. More Personal Computing accounts for about 28% of the company’s total operating income.

Microsoft’s Recent Developments

On Sept. 14, 2021, Microsoft announced that its board of directors has approved an 11% increase of its quarterly dividend, raising it to $0.62 per share. The dividend will be payable on Dec. 9, 2021, to shareholders of record on Nov. 18, 2021. Microsoft’s board also approved a new share repurchase program authorizing up to $60 billion in share buybacks. The repurchase program has no expiration date and may be terminated at any time.

How Microsoft Reports Diversity and Inclusiveness

As part of our effort to improve the awareness of the importance of diversity in companies, we offer investors a glimpse into the transparency of Microsoft and its commitment to diversity, inclusiveness, and social responsibility. We examined the data Microsoft releases to show you how it reports the diversity of its board and workforce to help readers make educated purchasing and investing decisions.

Below is a table of potential diversity measurements. It shows whether Microsoft discloses its data about the diversity of its board of directors, C-Suite, general management, and employees overall, as is marked with a ✔. It also shows whether Microsoft breaks down those reports to reveal the diversity of itself by race, gender, ability, veteran status, and LGBTQ+ identity.