Microsoft splits business as cloud unit outpaces hardware slump

Microsoft disclosed its financial results for the first quarter of fiscal 2027 on Tuesday, reporting $92.3 billion in revenue. The figure represents a 19 percent increase from the same period last year. Net income climbed 32 percent to $33.6 billion.

The company simultaneously announced a structural change to its financial disclosures. Microsoft is abandoning its previous three-part organizational reporting in favor of two distinct segments. This move separates its high-growth cloud operations from its struggling consumer hardware divisions.

The new Agents and Infra segment includes Azure, commercial and consumer Microsoft 365, and server products. This unit generated $76.8 billion, accounting for 83 percent of total revenue. It grew 25 percent year over year. Azure specifically brought in $33.17 billion, marking a 48 percent surge. Microsoft will now report Azure figures individually each quarter.

The Devices and Consumer segment includes Windows, Xbox, Surface, and search and advertising. This group generated $15.5 billion, a 3 percent decline. Windows OEM and devices revenue fell 22 percent. Microsoft cited the end of Windows 10 support in the prior year, inventory adjustments, and a weak PC market for the drop. The company noted that memory shortages, dubbed RAMageddon, have pushed Surface prices to record highs.

Xbox performance also lagged. Hardware revenue decreased 14 percent, while content and services revenue fell 2 percent. The company has not updated Game Pass subscriber numbers since reporting 34 million subscribers more than two years ago. Xbox CEO Asha Sharma previously stated in a memo that the goal is to return the business to player and revenue growth by the end of fiscal 2027.

Cloud operations remained the primary driver of earnings. Microsoft Cloud revenue reached $63.9 billion, nearly 70 percent of the total. This figure rose 30 percent year over year. Microsoft 365 commercial cloud revenue grew 18 percent, aided by higher revenue per user and sales of premium options like Copilot and E5 licenses. Consumer cloud revenue increased 17 percent, driven by a 7 percent rise in subscribers.

The company scheduled its earnings call for 2:30 PM PT on the same day. The shift in reporting structure allows investors to isolate the strong performance of the cloud business from the ongoing challenges in the personal computing market.