Microsoft profit beats expectations on high demand for cloud products

PUBLISHED : Friday, 29 January, 2016, 9:56am
UPDATED : Friday, 29 January, 2016, 9:56am

Microsoft reported quarterly revenue and profit that beat analysts’ expectations, driven by aggressive cost cutting and growing demand for its cloud products and services.

Chief executive Satya Nadella has focused on cloud services and mobile applications on slower growth in its traditional software business. Companies moving much of their information technology off premises, part of the cloud-computing trend, proved a bright spot.

“The enterprise cloud opportunity is massive, larger than any market we have ever participated in,” Nadella said in a conference call.

Microsoft’s stock had climbed more than 26 per cent in the past 12 months to US$52.06 at Thursday’s close, even as the broader US market has dropped 5 per cent. The shares rose 3 per cent in after-hours trading.

Revenue from the “intelligent cloud” business, which includes products such as its Azure cloud infrastructure and services business along with other non-cloud products such as traditional servers, rose 5 per cent to US$6.3 billion.

Perhaps a better indicator of its cloud strength is what the company calls its combined cloud business, on track for US$9.4 billion in annual revenue, the company said. That measure, which includes Azure plus other businesses like Office 365, is up 15 per cent from the US$8.2 billion revenue it estimated last quarter.

“They nailed the cloud,” said Matt Howard, a venture capitalist at Norwest Ventures who monitors Microsoft closely.

Total revenue, however, fell 10.1 per cent to US$23.80 billion, squeezed by a strong US dollar as well as a weak personal computer market that has reduced demand for Microsoft’s Windows operating system. On an adjusted basis, revenue fell to US$25.69 billion but beat analysts’ estimates.

Microsoft generates more than half of its revenue from outside the United States.

Revenue in the business that includes Windows fell 5 per cent to US$12.66 billion. Windows revenue closely tracks sales of personal computers, which fell 10.6 per cent globally in the December quarter from a year earlier, according to research firm IDC.

IDC said business should improve later this year as companies that had delayed replacing machines before upgrading to Windows 10 make the switch. Microsoft released Windows 10 in July.

Microsoft’s net income fell to US$5 billion, or 62 US cents per share, in its second-quarter ended December 31 from US$5.86 billion, or 71 US cents per share, a year earlier.

Excluding items, the company earned 78 US cents per share.

Analysts on average had expected a profit of 71 US cents per share and revenue of US$25.26 billion.