Seattle – Microsoft’s second-quarter sales and profit
exceeded analysts’ projections, bolstered by rising customer sign-ups for Azure
and Office cloud-computing services.
Profit excluding certain items, such as a few weeks
of results from newly acquired LinkedIn Corp., was 84 cents a share on adjusted
sales of $25.8 billion, the software maker said Thursday in a statement.
Analysts on average had estimated profit would be 79 cents on revenue of
$25.3 billion in the period ended December 31, according to data compiled by
Bloomberg.
CEO Satya Nadella is reformulating the company as a
seller of internet-based corporate services for running applications, storing
data, collaborating and enhancing worker productivity. Under brands like Azure
and Office 365, these cloud offerings have helped revive sales even as the
traditional PC-software market continues to contract. Near the end of the
quarter the company completed its biggest acquisition, the $26.2 billion
purchase of LinkedIn, whose data and professional networking tools will augment
Microsoft’s own productivity products.
"As long as cloud is growing, people are
happy,” said Mark Moerdler, an analyst at Sanford C. Bernstein & Co,
who rates the shares outperform. “If margins are growing, people are even
happier."
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Microsoft shares gained 1.2 percent in extended
trading following the report, after climbing to a record $64.27 at the
close in New York. The shares rose 7.9 percent during the fiscal second
quarter.
Cloud surge
Azure revenue almost doubled in the recent quarter, and
corporate versions of Office 365 saw sales increase 47 percent. Almost 25
million consumers are now subscribed to Office 365, the company said.
Redmond, Washington-based Microsoft has been spending on
data centres and adding products to win new cloud customers. Chief Financial
Officer Amy Hood said in July that gross margins, a measure of profitability,
for the commercial cloud business would "materially improve" in the
current year. That’s because previous years of investment are starting to
pay off as those data centres support more customers. Second-quarter commercial
cloud gross margin was 48 percent, 2 percent wider than a year earlier.
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Microsoft has pledged to reach annualised revenue of $20
billion in its corporate cloud business by the fiscal year that ends in June
2018. That metric stood at more than $14 billion at the end of the second
quarter. The company has been adding customers for its Azure services, which
let clients run and store applications in Microsoft’s data centres, as well as
for cloud-based versions of Microsoft’s Office applications like Word and
Excel. During the quarter, Microsoft announced a corporate chat service called
Teams, aimed at taking on Slack.
"Microsoft is the plumbing in the cloud,"
Moerdler said. "Amazon is much bigger, but still Amazon and Microsoft are
pulling away from the pack. More and more you hear CTOs talking about both, or
more of them are talking about Microsoft that weren’t before."
PC slump
Worldwide PC shipments in the December quarter declined
1.5 percent, a slower pace than in the previous period, but the industry
remains in a multiyear slump.
Microsoft in July said it wouldn’t meet its goal of
getting the Windows 10 PC operating system on 1 billion devices within two to
three years of the software’s 2015 release. The company blamed the shortfall on
the decision to all but exit the phone hardware business, and insisted this
year would be a good one for corporate adoption of the system.
Second-quarter sales in the company’s More Personal Computing
business, including Windows and Xbox, fell 5 percent to $11.8 billion. That
compares with the $11.44 billion average estimate of five analysts polled by
Bloomberg. Gaming revenue for Xbox and PC fell 3 percent.
In the Intelligent Cloud unit, comprised of Azure and
server software deployed in customers’ own data centres, sales increased 8
percent to $6.9 billion, compared with the $6.68 billion average analyst
estimate. Productivity revenue climbed 10 percent to $7.4 billion. Analysts had
estimated $7.02 billion.