Microsoft's Cloud Business Booms, As Its Windows And Phone Business Struggle

Microsoft blew away analysts' profit expectations for its first fiscal quarter of 2016, showing that the dominant software maker’s big bets on its Azure cloud platform are paying off. Thursday’s results also revealed that Microsoft’s Windows 10 operating system has yet to catch fire with consumers and the enterprise.

The Redmond, Wash-based company reported earnings of $4.62 billion on $20.38 billion in revenue.

Microsoft’s biggest win, for the reporting period that ended Sept. 30, was success with sales of its Azure cloud platform, which Microsoft said more than doubled year-over-year. Azure is part of Microsoft's Intelligent Cloud segment, which garnered sales of $5.9 billion was responsible for an 8 percent boost to revenue for the quarter. Microsoft said it's success was tied to cloud services, Azure compute usage and the addition of 20,000 new enterprise mobility customers.

Excluding the impact of the dollar, Microsoft revenue fell 13 percent. The company's earnings for the quarter climbed to $4.62 billion, or 57 cents a share, up from $4.54 billion, or 54 cents a share, the same quarter a year ago. Earnings were reduced, according to the company, by large restructuring costs of $1.14 billion. In July, Microsoft said it would cut more than 7,000 jobs as it struggled to rejigger its mobile phone strategy after a massive write-down related to its Nokia handset unit.

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The company reported adjusted earnings of 67 center per share, besting analysts' estimates of 58 cents per share according to Thomson Reuters.

Sales of Windows 10, a key for Microsoft’s cloud and consumer device strategy, were not robust, with the company blaming weak PC sales overall for the lackluster performance of its operating system.

Windows OEM revenue declined 6 percent and phone revenue declined 54 percent with overall revenue tied to Microsoft’s More Personal Computing business unit down 17 percent to $9.4 billion. One of the bright spots in that segment was stronger sales of revenue tied to search advertising, which was up 29 percent. Its Xbox Live active monthly users grew 28 percent.

"We are making strong progress across each of our three ambitions by delivering innovation people love," said Satya Nadella, CEO of Microsoft, in a prepared statement. ’Customer excitement for new devices, Windows 10, Office 365 and Azure is increasing as we bring together the best Microsoft experiences to empower people to achieve more."

Overall revenue was down for products and services tied to Microsoft’s Office products that are part of its Productivity and Business Processes business segment. Microsoft reported revenue of $6.3 billion for the business segment, down 3 percent. Microsoft reported Office commercial products and cloud services grew 5 percent overall. Microsoft said Office 365 subscriptions increased to 18.2 million with 3 million added this past quarter.

Microsoft launched a bevy of new devices earlier this month, including the Surface Pro 4 tablet, its first-ever laptop and three new model Lumia phones, all running on Windows 10.

PUBLISHED OCT. 22, 2015