Microsoft restructures into two units as cloud revenue hits $63.9 billion

Microsoft’s quarterly results reveal a company increasingly defined by its cloud infrastructure rather than its consumer hardware. For the first quarter of fiscal year 2027, the company reported $92.3 billion in revenue and $33.6 billion in net income. These figures represent a 19 percent increase in revenue and a 32 percent rise in net income compared to the same period last year.

The company has overhauled its financial structure to reflect this shift. Effective immediately, Microsoft is discarding its previous three-segment model, which included Productivity and Business Processes, Intelligent Cloud, and More Personal Computing. It is replacing this with two distinct segments: Agents and Infra, and Devices and Consumer. This change allows for clearer visibility into the performance of its core cloud assets versus its traditional hardware lines.

The Agents and Infra segment, which includes Azure, Microsoft 365 commercial and consumer, and server products, generated $76.8 billion in revenue. This accounts for 83 percent of the company’s total income and grew 25 percent year over year. Within this segment, Azure revenue specifically reached $33.17 billion, a 48 percent jump from the prior year. Microsoft Cloud revenue as a whole totaled $63.9 billion, rising 30 percent and representing nearly 70 percent of the company's total earnings.

The Devices and Consumer segment, comprising Windows, Xbox, Surface, and search advertising, brought in $15.5 billion. This figure represents a 3 percent decline year over year and makes up the remaining 17 percent of total revenue. The drop in this area was driven largely by a 22 percent fall in Windows OEM and devices revenue. Microsoft cited the end of Windows 10 support in the prior year, which had artificially boosted sales, as a factor, along with inventory drawdowns and a broader 20 percent decline in the PC market caused by a memory shortage known as RAMageddon.

Xbox also faced headwinds during the quarter. Hardware revenue decreased by 14 percent, while content and services, including Game Pass, slipped 2 percent. The division is undergoing a major reset that includes thousands of layoffs and the separation of certain studios. Xbox CEO Asha Sharma stated in a memo earlier this year that the goal is to return the business to player and revenue growth by the end of fiscal year 2027.

Microsoft scheduled an earnings call for 2:30 p.m. PT to discuss the results. The company noted that Microsoft 365 commercial cloud revenue grew 18 percent, aided by higher per-user revenue and sales of premium options like Copilot. Consumer cloud revenue rose 17 percent, supported by a 7 percent increase in subscribers.

Surface devices, launched with new Intel and Qualcomm chips earlier in the year, face higher price points due to the ongoing memory crunch. The company expects a difficult stretch for the PC market as it adjusts to these supply constraints.