By Jay Greene
Microsoft Corp. extended its streak of wins in the latest
quarter and signaled further strength in the months ahead as the
software giant moves into an era where its venerable Windows
franchise plays a supporting role to its burgeoning cloud-computing
operations.
The cloud business, called Azure, jumped 93% in the fiscal third
quarter, Microsoft reported Thursday. The business has never grown
slower than 90% since the company began reporting the metric in
October 2015. The other big piece of the company's cloud
operations, the commercial version of its Office 365
online-productivity service, grew 42%.
Microsoft doesn't disclose revenue for either business, but in
the preceding second quarter it said Azure jumped 98% and
commercial Office 365 grew 41%.
The two businesses combined accounted for $6 billion in revenue,
up 58% on what Microsoft financial chief Amy Hood said was
"better-than-expected demand."
Ms. Hood pointed to 20% growth in Microsoft's server-products
and cloud-services revenue as a reflection of its focus on the
hybrid cloud, in which customers mix cloud services with software
running on servers in their own data centers.
Microsoft has capitalized on its legacy as a seller of server
software to win over its longtime customers who choose to gradually
move their operations to the cloud.
That growth has propelled Microsoft into the role of chief cloud
rival to Amazon.com Inc., which pioneered the business of renting
out computing power and storage a decade ago. In the first three
months of 2018, Amazon held a 31.7% share of that cloud
infrastructure market, while Microsoft had 16% and Google 7.4%,
according to the research firm Canalys.
"Two years ago, there was a clear No. 1 with no clear No. 2,"
said Stifel Nicolaus & Co. analyst Brad Reback. "There is no
doubt that Microsoft has put significant distance between
themselves and all of the other" Amazon rivals.
The surging cloud business led Microsoft to post a profit
increase of 35% to $7.42 billion, or 95 cents a share. Revenue rose
16% to $26.82 billion. Analysts surveyed by S&P Global Market
Intelligence expected Microsoft to report per-share earnings of 85
cents on revenue of $25.78 billion.
Microsoft no longer reports adjusted figures, reflecting
accounting changes it adopted at the start of the fiscal year. The
year-ago figure reflects that change.
The stock climbed 3.2% in after-hours trading to $97.41 after
the company provided strong guidance for the current fiscal fourth
quarter.
Ms. Hood expects the Productivity and Business Processes
segment, which includes Office, to grow roughly 9% from a year ago
to between $9.55 billion and $9.75 billion. The unit that includes
Azure, the Intelligent Cloud segment, should climb about 22% to
$8.95 billion to $9.15 billion.
She projected roughly 18% growth even for the often-sluggish
More Personal Computing segment that includes Microsoft's Windows
franchise, guiding to revenue of between $10.3 billion and $10.6
billion.
Last month, Microsoft shares hit an all-time high of $96.77, a
gain of nearly 40% over the past year. The company has jostled with
Alphabet Inc. and Amazon for the No. 2 spot behind Apple Inc. as
the world's most valuable company as measured by market
capitalization.
Revenue from the Intelligent Cloud segment rose 17% to $7.9
billion. Productivity and Business Processes segment revenue
climbed 17% to $9.01 billion.
The company continues to dole out huge sums building massive
data centers around the globe to battle Amazon and others. In the
quarter, Microsoft had $3.5 billion in capital expenses, with much
of that money going toward its data-center expansion. A year ago,
Microsoft had $2.1 billion in capital expenditures
Microsoft doesn't break out revenue for its Windows business.
Earlier this month, International Data Corp. reported world-wide PC
shipments showed no growth in the most recent quarter.
Revenue in Microsoft's More Personal Computing segment, which
includes Windows as well as the mobile-phone and Xbox gaming
businesses, gained 13% to $9.92 billion.
A month ago, Microsoft split the engineering group that develops
products under the Windows banner among two separate divisions. It
was a recognition that the product that had been synonymous with
Microsoft for most of its 43 years will now play a supporting role
to the company's cloud-computing efforts.
Even as Microsoft has shifted its focus away from Windows, the
operating system showed surprising resiliency. Revenue in the
version of Windows that Microsoft generally sells to corporate
customers, known as OEM Pro, grew 11%. And revenue from Microsoft's
Surface line of computers jumped 32% to $1.10 billion.
LinkedIn, the professional social network Microsoft bought for
$27 billion more than a year ago, grew rapidly, with revenue
climbing 37% to $1.34 billion.
"Results are ahead of expectations across all lines" of
LinkedIn's business, Microsoft Chief Executive Satya Nadella said
during a call with analysts. That has boosted advertising revenue
for the business, he said.
Write to Jay Greene at Jay.Greene@wsj.com
(END) Dow Jones Newswires
April 26, 2018 20:03 ET (00:03 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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