Cloud Proud: Azure Powers Double-Digit Growth For Microsoft's 'Intelligent Cloud'

The evolution of Microsoft's cloud to next-generation services is driving growth across the company and changing its relationships with customers, CEO Satya Nadella told investors in Microsoft's earnings call for the first quarter of fiscal 2018.

Customers increasingly are moving up the stack, from Azure infrastructure to "premium services" that rely on data-centric capabilities, like artificial intelligence and edge computing, Nadella said.

Adoption of those advanced products for many customers follows a path that starts with Infrastructure-as-a-Service and storage. "Then lift, shift turns to lift, shift and modernize," Nadella said.

[Related: Microsoft Finishes Strong In Fiscal 2017 As 'Intelligent Cloud' Takes Off]

Overall in Q1, Microsoft, based in Redmond, Wash., saw GAAP revenue of $23.6 billion, and earnings of $0.73 a share. LinkedIn, the professional networking site Microsoft bought for $26.2 billion, $1.1 billion in its first breakout in Microsoft's financial disclosures.

Microsoft's "intelligent cloud" division, which encompasses the vast portfolio of public, private and hybrid cloud servers, as well as cloud services, again saw double-digit growth in the quarter that closed at the end of September.

The cloud business' $6.8 billion in sales, 14 percent higher than the same quarter of the previous year, was buttressed by the sustained surge of the Azure public cloud, which almost doubled in revenue from the same quarter of the previous year, notching 90 percent growth.

Microsoft expects the cloud division to continue double-digit revenue growth, Nadella said,

Cloud revenues are increasingly boosted by premium services, which Microsoft thinks of as "everything related to data," Nadella said.

Artificial intelligence and the Internet of Things are attracting new customers and accelerating the expansion of existing workloads, he said.

Microsoft built its infrastructure to support distributed computing. The company sees hybrid cloud as encompassing the interconnected devices increasingly deployed in the field, Nadella said.

"When we say hybrid, we never thought of it as some temporary state," he said, adding Microsoft's leaders always expected IoT and the cloud to become central components of application delivery.

The IoT workloads demand computational power, and artificial intelligence capabilities, at the edge of networks. They're also increasingly taking advantage of an emerging model of event-driven computation, Nadella said.

"We feel good about new workload growth. We feel good about lift, shift, modernize workload growth," Nadella said.

"What has happened," Nadella told investors, is "the kinds of workloads now that are moving to the cloud has qualitatively changed."

The advanced cloud-based technologies are fostering a new type of dialogue with Microsoft's traditional customers, Nadella said.

In the past, "a lot of tier 1 workloads were not on Microsoft stack. Now they increasingly are in Microsoft cloud."

The dialogue with customers, as a result, is much deeper and broader, Microsoft's CEO said.

"We're deeply partnering with them. It's no longer simple vendor relationships," Nadella said. "As they're trying to build their own software capability, they need a trusted partner. That's what we're investing in."

Another big focus of investment is driving the co-selling capacity of its ISV partners, enabling those third-party software vendors to find success on the Microsoft platform, Nadella said.

While Microsoft's revenue came in as Wall Street expected, and its earnings per share slightly outperformed estimates, the stock climbed $3.58 (4.55%) to $82.34 in after-hours trading.