Microsoft Corporation (MSFT)’s Fiscal Year 2015 Second Quarter Earnings Conference Call Transcript

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Amy: Thanks Keith. I’ll take the opportunity to do it for both Pro as well as non Pro because I wasn’t sure what category you were talking about. Let me start at the highest level which is. . .  if I look at industry analysts as well as many of our peers in the ecosystem I actually think that we agree with most of the benchmarks in terms of PC unit health across business which has been stable since FY13 and across consumer where we see meaningful progress made in unit growth both last quarter and especially this one. Then I’ll take a second and talk about the distinction between the revenue growth versus the unit growth and let me start first in Pro. There are really two dynamics. The first is the return to the XP levels that we saw prior to the XP refresh. They’re consistent, the dynamic mixes in terms of emerging and developed as well as enterprise sizing and it’s not an ASP problem in Pro. It is a return to the attach level we saw before. The component that actually is impact, the second component in Pro that is a “ASP/mix comment” is the academic licenses that I referred to earlier where we did lower the price and saw an increased unit number so that was a second component of the revenue piece but the larger component was XP reversion and again that’s not an ASP comment.

When it comes to non-Pro I think this really refers back to Satya’s comment which is we saw device grow in low price devices opening price points, we actually made, I believe, a strategic decision to increase our ability to put devices on the shelf, especially at retail at prices under $200 to $249, is what I think about the price points that were most impacted. We do have the Windows with being skew there, it is a lower RPL than our traditional non Pro OEM license but I do believe that growing meaningful ecosystems helps as well and throws good competitive dynamics in the channel and so overall while it did have an RPL impact which does explain along with mix shift the minus 13% in non Pro OEM versus the PC license growth that we saw, I think Satya covered the actual logic to that in terms of overall ecosystem health which we feel quite good about.

Keith: If I could squeeze in one follow up, have you guys done any assessment in terms of the success that you’ve seen in Surface Pro 3, definitely is a real productivity device…to what extent is that cannibalistic from what would’ve been Windows PC sales and to what extent do you think you’re expanding the market opportunity with that device?

Satya: I think it’s definitely expanding the market opportunity. One of the things I feel very good about is the risk we took to introduce the two-in-one category and I feel now that it in fact inspired even a lot of activity in our own OEM ecosystem and we see many good designs coming because it’s viewed as a category that drives growth and so.  From that perspective, I feel good about leading because that’s one of our strategic goals, we want to create new categories faster and with more demand for the entire ecosystem.

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