Microsoft splits operations into two units as cloud sales drive $92B quarter

Microsoft revealed on Tuesday that it is restructuring its financial reporting to separate its business into two distinct segments. The change coincides with the release of results for the first quarter of fiscal year 2027, where the company posted $92.3 billion in revenue and $33.6 billion in net income.

The new structure replaces three prior divisions with Agents and Infra and Devices and Consumer. Agents and Infra includes Azure, Microsoft 365 commercial and consumer, and server products. This segment generated $76.8 billion, representing 83 percent of total revenue, and grew 25 percent compared to the same period last year.

Microsoft will now disclose Azure revenue quarterly under this new framework. Azure sales reached $33.17 billion in the current quarter, a 48 percent increase from a year ago. Total Microsoft Cloud revenue, which includes other cloud services, hit $63.9 billion, or nearly 70 percent of the company's total earnings, and rose 30 percent year over year.

The Devices and Consumer segment, which covers Windows, Xbox, Surface, and advertising, accounted for the remaining 17 percent of revenue, or $15.5 billion. This figure declined by 3 percent. Windows OEM and devices revenue specifically fell 22 percent, a drop the company attributed to inventory adjustments and a weaker PC market. The broader PC market dropped 20 percent in the recent quarter due to a memory shortage.

Xbox hardware revenue decreased by 14 percent, while content and services revenue slipped by 2 percent. Xbox CEO Asha Sharma stated in a memo earlier this year that the company aims to return to player and revenue growth by the end of fiscal year 2027. She noted the goal is to scale successful initiatives to reach long-term daily-player targets with sustained double-digit growth by fiscal year 2030.

Microsoft 365 commercial cloud revenue grew 18 percent, aided by higher revenue per user and upselling of premium options. Consumer cloud revenue increased 17 percent, driven by a 7 percent rise in subscribers. The company held an earnings call at 2:30 PM PT to discuss these results.

Surface device prices have risen due to the ongoing memory crunch. The company recently launched new Surface Pro and Laptop models powered by Intel and Qualcomm chips. Rumors indicate that Xbox may face additional job cuts in November and January following recent layoffs and studio spin-offs.