Microsoft Corp on Thursday beat analysts’ estimates for fourth-quarter revenue and profit, powered by continued sales increases from its cloud business and a boost from businesses upgrading Windows.
Since Microsoft chief executive officer Satya Nadella took over in 2014, the company has been shifting away from its Windows operating system software and toward cloud services, in which customers move their computing work to data centers managed by Microsoft.
Revenue growth in Azure was 64 percent in the fiscal fourth quarter ended June 30, compared with 89 percent a year earlier and 73 percent a quarter earlier.
Microsoft does not provide an absolute revenue figure for Azure, blending it into its “intelligent cloud unit,” which had revenue of US$11.4 billion compared with analysts’ expectations of US$11.0 billion, Refinitiv data showed.
Cloud growth powered Microsoft’s market value past US$1 trillion for the first time in April. On Thursday, Microsoft’s Azure-based business segment for the first time ever reported slightly more quarterly revenue than its Windows-based segment.
“The pressure was obviously on but they executed,” said Hal Eddins, chief economist for Microsoft shareholder Capital Investment Counsel. “The cloud is such a key driver of growth for them and they seem to have painted a big bullseye on the back of AWS [Amazon Web Services].”
In the cloud computing business, Azure’s chief rival is AWS, which dominates the industry with a 32.8 percent market share, according to research firm Canalys.
Microsoft has a share of 14.6 percent, while Google has 9.9 percent.
Microsoft has also gained ground in the past year by bundling its Azure computing service for developers along with Office and other software products for end users, such as in the more than US$2 billion cloud deal it signed with AT&T Inc earlier this week.
Microsoft has tried to set itself apart from AWS by combining its traditional software that runs in a customer’s own data center with its Azure products, a strategy that Forrester analyst Chris Voce said helped power the company’s results.
“Its hybrid cloud strategy has resonated with enterprises where this is a more realistic and flexible approach,” Voce said.
Revenue in Microsoft’s productivity software unit jumped 14.3 percent to US$11.05 billion, driven by double-digit revenue growth for LinkedIn and Office 365. Analysts on average had expected revenue of US$10.71 billion, Institutional Brokers’ Estimate System data from Refinitiv showed.
Meanwhile, its personal computing division, home to Windows software, rose to US$11.3 billion, compared with analysts’ estimates of US$10.98 billion.
The unit also includes Xbox gaming consoles, the Bing online search service and Surface laptops.
Mike Spencer, general manager of investor relations at Microsoft, said that Windows results were fueled by customers upgrading from Windows 7, which is to be retired next year, and the result of some PC customers stockpiling inventory in anticipation of possible tariffs.
Microsoft’s net income rose to US$13.19 billion or US$1.71 per share in the fourth quarter, from US$8.87 billion or US$1.14 per share a year earlier.
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