By Jay Greene
Microsoft Corp. continued its rebirth as a force in
cloud-computing, posting stronger-than-expected gains in its
business of selling web-based services to corporate customers.
The software giant has been working to expand the business
selling web-based services to corporate customers, and now has
solidified its spot as the No. 2 provider of on-demand computing
processing and storage behind market pioneer Amazon.com Inc. In its
fiscal fourth quarter, Microsoft notched gains in its Azure
cloud-computing business and Office 365, the online version of its
widely used productivity software.
The Redmond, Wash., company said Thursday that its Intelligent
Cloud segment, which includes Azure, rose 11% to $7.4 billion. In
the Productivity and Business Processes segment, which includes the
Office franchise, revenue climbed 21% to $8.4 billion.
Microsoft doesn't disclose revenue figures for its Azure and
Office 365 businesses, but it said Azure revenue jumped 97% and
Office 365 revenue rose 43%.
"Azure was the primary source of our outperformance in the
quarter," Microsoft finance chief Amy Hood said in an interview.
"It's higher than I was expecting."
Overall, Microsoft posted $6.51 billion in fourth-quarter net
income, or 83 cents a share, compared with a profit of $3.12
billion, or 39 cents a share, a year ago. Excluding the impact of
revenue deferrals and other items, adjusted earnings climbed to 98
cents from 69 cents a year earlier. Per-share earnings in the most
recent quarter included a 23-cent tax benefit related to Microsoft
winding down its mobile-phone business.
Revenue rose 13% to $23.32 billion and was $24.7 billion when
adjusted to reflect Windows 10 revenue deferrals.
Analysts surveyed by S&P Global Market Intelligence expected
Microsoft to report adjusted per-share earnings of 71 cents, a
figure that didn't include the 23-cent tax benefit, on $24.29
billion in adjusted revenue.
Shares rose 3.1% to $76.50 in after-hours trading after results
beat expectations. The software giant's shares closed at a record
on Thursday, after setting its previous high a day earlier.
Microsoft's growth in the so-called hyperscale public cloud
market was faster in the quarter than investors anticipated. The
cloud unit is still smaller than Amazon in the market but appears
to be pulling away from its nearest rival, Alphabet Inc.'s Google,
said Stifel Nicolaus & Co. analyst Brad Reback.
"They are the undisputed No. 2 in the hyperscale public cloud
market, and it will be extraordinarily difficult for anyone to
catch them," Mr. Reback said.
Two years ago, Microsoft forecast its commercial-cloud run-rate
-- the last month of sales of its Azure and Office 365 products,
multiplied by 12 -- would top $20 billion in the 2018 fiscal year
that began July 1. At the end of the fourth quarter, the run-rate
stood at $18.9 billion.
"Obviously, we're feeling pretty confident about hitting" the
target, Ms. Hood said.
The strides Microsoft has made in the cloud come as its legacy
Windows operating-system business shrinks. Revenue in its More
Personal Computing segment, which includes Windows as well as the
mobile-phone and gaming businesses, slid 2% to $8.8 billion. Last
week, International Data Corp. reported world-wide PC shipments
fell 3.3% in the second quarter, while Gartner Inc. estimated the
drop at 4.3%.
Revenue for Microsoft's Surface line of computers also fell 2%.
Three months ago, that business was hit hard, registering a 26%
revenue decline, which the company attributed to older Surface
computers in the market, as well as increased price
competition.
Since then, Microsoft has introduced a new Surface laptop for
the education market and an update to its Surface Pro tablet-laptop
hybrid device, though those products made their debut with just a
few weeks left in the quarter.
LinkedIn Corp., the professional social network Microsoft
acquired last December for $27 billion, added $1.07 billion in
revenue and posted a $361 million operating loss. Microsoft is
working to connect its business products to LinkedIn, giving sales
representatives using its Dynamics software, for example, tools to
easily mine the professional social network to prospect for
leads.
Like its cloud rivals Amazon and Alphabet Inc.'s Google,
Microsoft is spending lavishly to build giant and expensive data
centers around the world to deliver its cloud services. In the
quarter, Microsoft spent $3.3 billion on capital expenses, with
much of that money going toward its data center expansion. A year
ago, Microsoft had $3.1 billion in capital expenses.
In the current quarter, Microsoft expects revenue in its
Intelligent Cloud business of between $6.9 billion and $7.1
billion, up from $6.38 billion a year earlier. Revenue in its
Productivity and Business Processes segment should land between
$8.1 billion and $8.3 billion, including about $1.1 billion from
LinkedIn. A year earlier, that segment posted $6.66 billion.
Microsoft said the More Personal Computing segment's revenue will
be between $8.6 billion and $8.9 billion, compared with $9.29
billion a year ago.
Write to Jay Greene at Jay.Greene@wsj.com
(END) Dow Jones Newswires
July 20, 2017 19:35 ET (23:35 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
Microsoft (NASDAQ:MSFT)
Historical Stock Chart
From Aug 2024 to Sep 2024
Microsoft (NASDAQ:MSFT)
Historical Stock Chart
From Sep 2023 to Sep 2024