Microsoft Soars on Cloud Gains -- WSJ
October 21 2016 - 3:02AM
Dow Jones News
By Jay Greene
Microsoft Corp.'s cloud-computing businesses kicked into high
gear as sales of the software giant's Azure service more than
doubled.
Overall revenue, which has slid for each of the past five
quarters, also grew in the period. The Redmond, Wash., company beat
analyst expectations for both sales and profit in the first
quarter, which sparked a 6% rise in its share price to $60.77 in
after-hours trading.
If Microsoft shares trade that high on Friday, the price will
surpass the company's all-time high of $59.56 during the dot-com
boom in 1999.
Microsoft ranks second in selling computing power and data
storage capacity on demand over the internet. Amazon.com Inc.,
which pioneered the business, has a huge lead with 31% of the
market, according to a recent survey from Synergy Research Group.
But with an 11% share of the market for what is known as
infrastructure as a service, Microsoft Azure is Amazon Web
Services' stiffest competition.
Microsoft is capitalizing on massive investments it has made
building data centers around the globe to handle its
cloud-computing traffic. The company spent $2.3 billion in capital
expenditures in the first quarter.
"A lot of the investments they made in capital expenditures are
paying off this quarter and should only accelerate," said Stifel
Nicolaus & Co. analyst Brad Reback.
Moreover, Microsoft posted 49% gross margins in the businesses
it lumps together under the heading commercial cloud -- not a
reporting segment -- which includes Azure as well as the
cloud-based Office 365 productivity suite and Dynamics software for
sales professionals. Mr. Reback said this shows the company can
generate sizable profits in the cloud despite declines in the
lucrative business of licensing software that customers install on
computers on their own premises.
The company is taking advantage of the wave of digital
technology washing over mainstream businesses, said Microsoft Chief
Executive Satya Nadella. "It's not just the Silicon Valley startups
anymore, it is the core enterprise that is also becoming a digital
company," Mr. Nadella said during a Thursday conference call with
analysts. "And we are well positioned to serve them and that's good
to see."
Revenue from Azure grew 116%, or 121% in constant currency, the
company said. Chief Financial Officer Amy Hood noted that use of
Azure's compute service more than doubled as well.
Microsoft posted big gains in the reporting segment it calls
productivity and business processes, which includes both online and
on-premises versions of Office and Dynamics. There, sales climbed
6% to $6.7 billion. In constant currency, revenue grew 8%. Revenue
from commercial sales of the cloud-based Office 365 jumped 51%, or
54% in constant currency.
And Dynamics revenue grew 11%, or 13% in constant currency,
driven by online revenue growth, the company said.
Even Microsoft's Windows business, which has shrunk over the
years, showed surprising vigor. Windows revenue from computer
makers was flat in the quarter, but that beat the world-wide PC
market as a whole, which slid 3.9% in the quarter that ended in
September, according to International Data Corp.
For the quarter, revenue from the segment known as more personal
computing, which includes Windows, as well as Microsoft's mobile
phone and gaming businesses, fell 2% to $9.3 billion, a 1% decline
in constant currency.
Microsoft posted $4.69 billion in first-quarter net income, or
60 cents a share, compared with a $4.9 billion profit, or 61 cents
a share, a year ago.
Excluding the impact of revenue deferrals and restructuring
charges, adjusted earnings were 76 cents. Revenue rose 0.4% to
$20.45 billion and was $22.33 billion on an adjusted basis.
Analysts surveyed by Thomson Reuters expected Microsoft to
report adjusted earnings per share of 68 cents on sales of $21.7
billion.
Write to Jay Greene at Jay.Greene@wsj.com
(END) Dow Jones Newswires
October 21, 2016 02:47 ET (06:47 GMT)
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