By Don Clark and Chelsey Dulaney
Microsoft Corp. continued an era of renewed vitality in the
latest quarter, showing progress in newer cloud-computing services
as well as in such established business lines as Windows.
Despite a decline in both the company's revenue and profit for
the period ended in December, the numbers topped Wall Street
expectations on an adjusted basis, which excludes deferred revenue
from its Windows 10 operating system. The results sent its shares
up 3% in after-hours trading.
One continuing drag comes from smartphones, a business Microsoft
retooled after it wrote down about 80% of its disastrous $9.4
billion purchase of Nokia Corp.'s handset business. Microsoft said
phone revenue declined 49% in the second quarter, excluding
currency impacts, an especially poor showing after repeated efforts
to establish a foothold in the phone market.
Other hardware businesses showed strong growth. Microsoft said
it brought in $1.3 billion in revenue in the second fiscal quarter
from its Surface computing products, including a new laptop and a
model that converts from clamshell to tablet. That is up 29% from
the year-earlier period, excluding negative effects from a stronger
U.S. dollar.
The company also showed further growth in cloud services, a term
that refers to selling access to software or raw processing power
running in Microsoft's own data centers. It said all its cloud
businesses are running at an annual rate that is 70% higher than
the year-earlier period. Revenue from its Azure service, which
competes with cloud-based infrastructure services from Amazon.com
Inc., grew 140%, the company said.
But Microsoft is also showing strength in its traditional
business of operating systems for PCs, despite a declining hardware
market. The company said its Windows 10 offering, introduced last
summer, earlier this month was running on 200 million computers, up
from 100 million for the period ended in September, Microsoft
said.
"Windows 10 is outpacing adoption of any of our previous
operating systems," said Satya Nadella, Microsoft's chief
executive, during a conference call with analysts.
Daniel Ives, an analyst at FBR Capital Markets, called demand
for Windows 10 "eye-popping."
Rather than booking revenue from sales of its operating system
up front, Microsoft records it gradually along with deferred
revenue generated by the product. As a result, analysts and the
company focus mainly on adjusted figures for earnings and
revenue.
Microsoft's profit on that basis, for example, rose 8%. Under
generally accepted accounting principles, by contrast, its profit
declined 15%.
Microsoft, based in Redmond, Wash., has suffered as sales of PCs
have declined. Gartner Inc. recently estimated that PC shipments
fell 8.3% in the fourth quarter, while International Data Corp. put
the drop at 10.6% and noted that total unit sales in 2015 fell
below 300 million for the first time since 2008.
But Amy Hood, Microsoft's chief financial officer, said Thursday
that revenue from selling Windows to PC makers only declined 5% in
the period ended in December. A segment called More Personal
Computing, which includes revenue from Windows and the company's
Surface tablet computer, declined 2% excluding currency effects,
the company said.
Microsoft said that all its commercial cloud businesses were
running at an annual revenue rate of $9.4 billion as of the second
quarter, compared with $5.5 billion for the same period in
2014.
Revenue for a relatively new reporting segment called
Intelligent Cloud, which commingles the Azure cloud-computing
service with data-center software installed on customers' computers
as well as support and consulting, grew 11% excluding currency
effects, the company said.
Revenue for Microsoft's productivity segment, which includes the
cloud version of Office as well as a conventional version, rose 5%
on a constant-currency basis, Microsoft said.
In all, Microsoft said its second-quarter net income declined to
$5 billion, or 62 cents a share, down from $5.86 billion, or 71
cents a share, a year earlier.
Excluding the impact of revenue deferrals and restructuring
charges, adjusted earnings rose to 78 cents from 70 cents a year
earlier. Revenue, which fell 10% to $23.8 billion, on an adjusted
base rose 3% excluding currency effects.
Analysts polled by Thomson Reuters had expected adjusted
per-share profit of 71 cents and revenue of $25.26 billion.
Write to Chelsey Dulaney at Chelsey.Dulaney@wsj.com
(END) Dow Jones Newswires
January 28, 2016 19:10 ET (00:10 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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