By Jay Greene
Microsoft Corp. has ridden the cloud-computing wave for several
quarters, and once again its revenue surged on the strength of its
emerging business of selling web-based, on-demand computing
services.
In the fiscal first quarter, the two biggest pieces of
Microsoft's cloud-computing operations -- its Azure infrastructure
services and Office 365 online-productivity business -- saw revenue
soar 90% and 42%, respectively.
While the software giant doesn't disclose revenue figures for
those businesses, it said its commercial-cloud run rate -- the last
month of sales of its Azure and Office 365 products, multiplied by
12 -- hit $20.4 billion.
Two years ago, when the company's commercial cloud run-rate was
$6.3 billion, Microsoft Chief Executive Satya Nadella set a $20
billion goal for the end of the 2018 fiscal year.
"They crushed it again," said Stifel Nicolaus & Co. analyst
Brad Reback. "These were really strong growth rates."
Those gains continued to offset the company's Windows PC
operating-system franchise, which has slowed in recent years.
Revenue in Microsoft's More Personal Computing segment, which
includes Windows as well as the mobile-phone and gaming businesses,
stayed flat at about $9.4 billion. Microsoft doesn't break out
revenue for its Windows business. Earlier in October, International
Data Corp. reported world-wide PC shipments fell 0.5% in the third
quarter.
Overall, Microsoft posted $6.58 billion in net income, or 84
cents a share, compared with a profit of $5.67 billion, or 72 cents
a share, a year ago.
Revenue gained 12% to $24.54 billion.
Analysts surveyed by S&P Global Market Intelligence expected
Microsoft to report per-share earnings of 72 cents on $23.56
billion in revenue.
Shares rose 4.2% to $82.05 in after-hours trading Thursday after
results beat expectations. If Microsoft shares stay at these levels
when markets open Friday, it would be an all-time high. The stock
has gained 27% so far this year.
The engines of Microsoft's growth have been its Intelligent
Cloud segment, which includes Azure, and its Productivity and
Business Processes segment, which includes the Office franchise.
Revenue in Intelligent Cloud rose 14% to $6.92 billion, while
revenue in Productivity and Business Processes climbed 28% to $8.24
billion.
Microsoft's cloud growth has been fueled in large part by the
so-called hybrid cloud, in which customers mix cloud computing
services with software running on servers in their own data
centers. It is a particular strength of Microsoft's given its
history of selling software to corporate customers. Microsoft
finance chief Amy Hood cited the hybrid offerings as a driver of
the company's cloud growth.
"We were built for hybrid from the beginning," Ms. Hood said in
an interview. "We do believe that it resonates with customers.
The Productivity and Business Processes unit also includes
Microsoft's Dynamics business, which sells software and services to
help sales representatives manage customer relationships and
finance departments manage corporate resources. It is a market
where Microsoft competes with Salesforce.com Inc., among others,
and one in which the company has placed growing emphasis. Dynamics
revenue grew 13%, though the company didn't disclose a revenue
figure.
Microsoft purchased LinkedIn, the professional social network,
in December for $27 billion, in part, to boost the Dynamics
business. In the quarter, LinkedIn added $1.14 billion in revenue
and posted a $294 million operating loss.
During a conference call with financial analysts, Mr. Nadella
said that Microsoft is "ahead of plan" for LinkedIn's financial
contributions to the software giant's results. Microsoft has
integrated LinkedIn with a few Microsoft products, particularly
those in its Dynamics business.
"You'll see more product integration in fiscal '18 as we
continue to accelerate our innovation to connect the world's
leading professional cloud with the world's leading professional
network," Mr. Nadella said.
To support its growing cloud business, Microsoft is doling out
huge sums to build expensive data centers around the world. In the
quarter, Microsoft spent $2.7 billion in capital expenses, with
much of that money going toward its data-center expansion. A year
ago, Microsoft recorded $2.3 billion in capital expenses.
Microsoft launched a bevy of new Surface computers earlier this
year, including a refreshed Surface Pro tablet-laptop hybrid and a
lightweight laptop to compete with Apple's MacBook Air.
Microsoft didn't break out specific revenue figures for the
devices, but noted that Surface revenue gained 12% in the
quarter.
For the fiscal second quarter, Microsoft expects More Personal
Computing revenue of $11.7 billion to $12.1 billion, compared with
$11.82 billion in the year-earlier period. Productivity and
Business Processes should hit $8.75 billion to $8.95 billion, up
from $7.38 billion in the second quarter of fiscal 2017. Microsoft
expects the Intelligent Cloud unit to register $7.35 billion to
$7.55 billion, up from $6.86 billion in the year-earlier
quarter.
Write to Jay Greene at Jay.Greene@wsj.com
(END) Dow Jones Newswires
October 26, 2017 19:14 ET (23:14 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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