Microsoft revealed in a regulatory filing that it will soon move many business segments to other top-tier business sets, keeping the same three top-tier business sets as before.
The company presents this update as more transparent to investors as it better aligns with how the company is run, but it is likely designed to mask poor functionality or slowing growth in key businesses at a time when the software giant is making an investment. tens of billions of dollars per quarter to expand its artificial intelligence infrastructure. Microsoft’s huge expansion in wealth and value under Satya Nadella has been largely financed through Wall Street’s enthusiasm for Azure and Microsoft’s long run as a cloud giant. But as this business matured, its successor, AI, contributed more to prices than profits. By spreading out those prices, the company can more easily hide this weakness.
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Microsoft has three higher-level business units: Intelligent Cloud, Productivity and Business Processes, and More Personal IT, and, while that design doesn’t change, the company moves many business segments, from subbusinesses that sit within a higher-level business. Unit: To other parts of the business for financial reporting purposes. Microsoft highlights those adjustments in a presentation that accompanies the presentation.
Overall, it turns out that Microsoft’s largest business unit in terms of profits, Intelligent Cloud, is not changing: the profits of Azure and other cloud installations, server products, and commercial and associated installations will continue to be under this unit. But there are changes. Enterprise Mobility Security (EMS) is moving toward productivity and business processes (under the Microsoft 365 business cloud; see below). Nuance Enterprise profits are shifted from server products to Dynamics (under Productivity and Business Processes), Nuance Healthcare earnings are maintained.
And the two sets of businesses are evolving even further.
Productivity and business processes have long been the umbrella of Office cloud products, Array Dynamics and Array cloud products, and LinkedIn. But for fiscal year 2025, which began July 1 (in other words, the existing fiscal year), Office and cloud products are being replaced by separate Microsoft 365 product advertising and Microsoft 365 product advertising segments. cloud and client and cloudArray, and each is divided into separate product and cloud sub-segments to differentiate subscription and perpetual license revenues. (Dynamics and LinkedIn do not change).
As of today, More Personal Computing includes the Windows, Devices, Search & News, and Gaming business segments. The last two segments remain unchanged. But under the new structure, Windows and devices are merging into a single business segment. And while there will be Windows OEMs (now called Windows OEMs and devices) and other Windows subsegments, the Windows commercial products and cloud services subsegment is gone and is now part of the Microsoft 365 commercial cloud (under Productivity). and business processes). Therefore, this business unit’s earnings will decline significantly year-over-year (YOY) going forward.
Copilot Pro gains previously reported in Office Consumer Products and Cloud Services (in Productivity and Business Processes) are moving to Search and News Advertising (in More Personal Computing), which may help alleviate some of the loss of profits from commercial Windows products and cloud services. Training
Microsoft says it made these changes to align its financial reporting with how the company is run. For example, the merger of Windows and devices “will generate combined benefits in the PC market. “This will also hide the poor quality of the devices, i. e. high-performance Surface, of course. Which, again, I think is the real point of these adjustments or, at least, a satisfactory-looking effect: as a result of this change, Microsoft is legally obliged to restate last year’s earnings as if they had been declared in accordance with the new system. structure. And when that shift is made, Windows and devices collapse, with a profit shortfall of 5 percent and 1 percent in two of the last four quarters, and meager expansion of 2 percent and 4 percent in the other two.
The next few quarters were going to be interesting. But this update will make them even more interesting. And for other people like me, who obsess over those main points while getting less and less data each year, this deserves to be more confusing than ever.
Paul Thurrott is an award-winning generational journalist and blogger with 30 years of industry experience and the writing of 30 books. He is the owner of Thurrott. com and a third-generation host of podcasts: Windows Weekly with Leo Laporte and Richard Campbell, Hands-On Windows and First Ring Daily with Brad Sams. He was previously a Senior Technology Analyst at Windows IT Pro and author of SuperSite for Windows from 1999 to 2014 and Thurrott. com Principal Dome at BWW Media Group from 2015 to 2023. You can reach Paul via email, Twitter, or Juggernaut. .
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