Microsoft reported $92.3bn in revenue for Q3 2026. That's a 19% bump compared to the same quarter a year ago. But, when you look closer at the numbers, you see that there's a major crunch happening with Microsoft's licensing business that's tied to PCs.
Microsoft reports $92.3bn total revenue but Windows OEM segment falls to $3.6bn
OEM licensing for Windows is down 22% YoY, down from $4.6bn to $3.6bn. This is a big indicator that people are not really wanting to buy new PCs and that there's a rise in cost for parts like memory and storage. This is something for folks looking to buy new Windows-enabled hardware to consider as it may affect the pricing and availability of said hardware.
In the earnings call, there's also news around big changes in Microsoft's hardware and gaming. Xbox revenue was slightly down YoY, 2%, at $5.4bn for the quarter. And, we have some new leadership in the gaming biz.
The COO Helen Chiang is out and we have a new CEO Asha Sharma in charge. These exec changes are happening alongside the larger financial recalibration Microsoft is undergoing with their consumer products.
So, what's going on with PCs? Well, there are a few dynamics around Windows OEM licensing that are affecting PC makers. Microsoft said that the 22% decline in OEM licensing revenue for Windows was driven by a decline in consumer demand for PCs.
But, there's also a problem with rising memory and storage part costs that's cutting into margins. So, it's a really tough space for original equipment manufacturers with their Windows licenses.
Previously, we talked about Microsoft increasing OEM fees for Windows by 7-10% which is driving PC price hikes for consumers. Now, we're seeing an opposite effect with a decrease in volume. With higher fees per unit and lower volume overall, it's the downward revenue trend that we're seeing today. This is basically an indication that costs are being accepted but not as many PCs are being purchased.
The revenue drop is 22 percent year over year, but the total Windows OEM segment fell to 3.6 billion from 4.6 billion. That is a significant volume decline, not just a margin squeeze.
so pc sales are really tanking then? 😅
I just want my computer to work without paying more. The rising cost of memory and storage is killing any incentive to upgrade a working machine.
Does the 22 percent decline apply to Windows 11 OEM licenses only or does it include legacy Windows 10 entitlements that are still being activated?
The article states the decline is driven by reduced consumer demand generally. It does not break out the license version. The drop in volume suggests most new builds are shipping with Windows 11 preinstalled.
Microsoft raising OEM fees by 7 to 10 percent previously was supposed to drive revenue up. Now volume is down so hard that even higher per unit fees cannot prop up the segment.
tbh i am waiting for prices to drop now that demand is weak. maybe i can finally get a decent rig without selling a kidney.