Service Provider Cloud

Microsoft Azure Revenues Climb 76%

The cloud continues to bring sunshine for Microsoft. The company reported $32.5 billion in quarterly revenue on Wednesday, up 12%, with Azure revenue growth up 76%.

Microsoft breaks its cloud results into many pieces and scatters them around different business units. However, it's all looking good. Overall commercial cloud revenue grew 48% year-over-year to $9.0 billion. Office commercial products and cloud services revenue grew 11%. That includes Office 365 Commercial revenue growth of 34%. Also, Office consumer products and cloud services increased 1%, with growth in Office 365 Consumer subscribers reaching 33.3 billion. (See Microsoft: Cloud Lifts 2Q To $32.5B, Up 12%.)

LinkedIn revenue grew 29%, with record levels of engagement highlighted by LinkedIn sessions growth of 30%.

Products and cloud services revenue for Dynamics, Microsoft's enterprise resource planning and sales software, increased 17%, driven by Dynamics 365, Microsoft's cloud-delivered version of the software, which grew 51%.

Intelligent Cloud revenue was $9.4 billion, up 20%, including server products and cloud services, up 24%. This is where Azure's 76% revenue growth comes in.

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Microsoft declined to break out actual revenue numbers for Azure. Growth declined for Azure last quarter, but remained constant this quarter.

And enterprise services revenue increased 6%.

The company reported net income of $8.6 billion non-GAAP, with diluted earnings per share of $1.10 non-GAAP.

Capital expenditure for Microsoft was $3.9 billion this quarter, including cloud investments. That's down a bit from $4.3 billion in its first fiscal quarter.

Slowdown in cloud infrastructure investment seems to be industry-wide. Intel warned of cloud providers slowing down purchasing chips, while Juniper Networks Inc. (NYSE: JNPR) said cloud providers are slowing down spending as they grow into the infrastructure they purchased previously. (See Juniper: Our Finances Aren't All Bad, Really!.)

On an earnings call with analysts Wednesday, Microsoft CFO Amy Hood said declining capital expenditure was due to "the timing of our cloud infrastructure buildout," and that capital expenditure will be more than $3.9 billion in the current quarter.

For the current quarter, Microsoft expects $29.4 billion to $30.1 billion in revenue.

Microsoft's stock traded at $103.49, down 2.72% after hours Wednesday.

Prior to the earnings report, there were concerns about Microsoft growth, in the face of slowdowns in China and increased competitive pressure, Forrester Research Inc. analyst Chris Voce tells Light Reading. "They maintained their growth trajectory, which was very positive news for Microsoft," Voce says.

Microsoft differentiates from its competition by offering industry specific solutions -- for example, Dynamics integrates closely with field service organizations, Voce says. And in Microsoft's earnings press release Wednesday, CEO Satya Nadella singled out retail, financial services and healthcare as areas of growth.

Microsoft also competes strongly on AI, Voce says.

In market share, Microsoft is second to Amazon Web Services, which is by far the market leader in the cloud -- so much so that Voce doesn't anticipate Microsoft catching up in the next five years, though he's optimistic Microsoft can gain market share.

Microsoft's recent cloud milestones include deals with the Gap, Walgreens and Albertsons, as well as the purchase of Glint, a tool to help companies determine if their employees are happy. Microsoft did not disclose terms of the Glint deal, but CNBC put it at $400 million or more. Microsoft also closed its GitHub acquisition. (See Microsoft Scores Another Retail Win, Taking Gap to the Cloud, Microsoft-Walgreens Partnership: Just What the Doctor Ordered and Microsoft Completes $7.5B GitHub Acquisition .)

— Mitch Wagner Visit my LinkedIn profileFollow me on TwitterJoin my Facebook GroupRead my blog: Things Mitch Wagner Saw Executive Editor, Light Reading

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