Why Microsoft's Windows Revenue Is Flat Despite The Fact That The PC Industry Is Imploding

In the March quarter, Windows generated ~$4.6 billion in revenue, which is flat on a year over year basis.

Flat is not what you want, but it's better than shrinking, which is what many people expected after IDC announced the worst PC sales numbers in history last week.

According to IDC, the PC industry is imploding. PC sales for the first quarter of 2013 were down 14% on a year over year basis.

IDC blamed the confusing new tile-based design for Windows 8 for the decline in PC sales. It says its scaring people away from traditional PCs.

With the bad news from IDC, many people assumed Microsoft's Windows division was going to be hosed.

Chris Suh, Microsoft's head of investor relations, explained how Windows managed to stay flat despite a weak market.

He said sales of the Surface Pro and Surface RT, Microsoft's iPad-killers, combined with volume licenses, made the difference.

The Surface tablet, which probably isn't selling in great volume, adds enough to offset the decline in the traditional PC. In fact, any Windows tablet sales aren't going to be counted by IDC. Microsoft isn't disclosing Surface sales.

Volume licensing should be a $4 billion business this year, says Suh. Microsoft's sales people, or third-party sellers, sell Windows to enterprises on multi-year contracts. These contracts help offset rough patches with the PC business.

As we said, a flat Windows business is not as nice as a growing PC business.

The good news for Microsoft, though, is that it's a diversified business. The Server and Tools division was up 11% on a year over year basis, and the Business Division was up 5% on a non-GAAP basis.