Microsoft's Looking Cloudy, & That Ain't Bad

Mitch Wagner
1/27/2017

Microsoft is going strong on its multi-year pivot toward the cloud and away from its traditional software business, reporting Azure revenue up a whopping 93% year-over-year in quarterly results disclosed Thursday. That compares with overall company revenue of $26.1 billion, up a modest 2% year-over-year.

Microsoft is seeing "strong demand for cloud-based services," said Amy Hood, the company's executive vice president and chief finance officer in a statement on Thursday, demonstrating a keen grasp of understatement. (See Microsoft Cloud Strength Highlights Second Quarter Results .)

Net income for the second fiscal quarter ending December 31 was $6.5 billion, and diluted earnings per share were $0.83.

LinkedIn, which Microsoft Corp. (Nasdaq: MSFT) bought on December 8, contributed revenue of $228 million, a net loss of $100 million and diluted earnings per share of negative $0.01. Microsoft paid $26.2 billion for the professional networking service. (See Microsoft Closes LinkedIn Acquisition. What's Next? and Microsoft Names LinkedIn's Kevin Scott CTO.)

Microsoft Office commercial products and cloud services revenue increased 5%, driven by Office 365 commercial revenue growth of 47%. Office consumer products and cloud services increased 22%, with Office 365 consumer subscribers increasing to 24.9 million, Microsoft said.

For its Office 365 users, Microsoft has three goals, said CEO Satya Nadella on the earnings call: First is increasing engagement; second is appealing beyond the traditional audience of knowledge workers; and third is moving into non-traditional areas, including retail and manufacturing. StaffHub, a technology launched this month to schedule shifts for "deskless workers," will help drive that goal, Nadella said.

And Microsoft is looking to engage Office 365 users with new services, such as E5 -- a new commercial licensing plan -- as well as voice, analytics and security features, Nadella said.

Dynamics CRM product and cloud services revenue increased 7%, driven by the Dynamics 365 cloud product, the company said.

Intelligent Cloud revenue was $6.9 billion, up 8%, while server products and cloud services revenue increased 12%, driven by double-digit annuity revenue growth.

And Azure compute usage more than doubled year-over-year, Microsoft said.


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Microsoft did not break out revenue for Azure, but it did say that its commercial cloud annualized revenue exceeded $14 billion, putting Microsoft on track to exceed its internal goal of topping $20 billion by next year.

Microsoft stock was up 1.20% after hours, trading at $65.08

Microsoft is a leader in the cloud, but it has a long way to go to catch up with the front-runner Amazon. (See Amazon Bigger in IaaS Cloud Than Microsoft, Google & IBM Combined.)

However, Microsoft specializes in hybrid cloud, while Amazon's focus is on public cloud -- though Microsoft also provides public and Amazon is beefing up its hybrid services, most notably through a partnership with VMware to extend VMware's datacenter virtualization into the Amazon cloud. (See Why Microsoft Azure?, Why Amazon Web Services?, Enemies No More: Amazon & VMware Partner on Cloud, and VMware's Hybrid Cloud Plans Pay Off.)

— Mitch Wagner, Follow me on TwitterVisit my LinkedIn profile, Editor, Light Reading Enterprise Cloud


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Kelsey Ziser
Kelsey Ziser
1/27/2017 | 9:09:02 AM
Benefits to LinkedIn users
@Mitch in Microsoft Closes LinkedIn Acquisition. What's Next? you mention some of the changes Microsoft plans to make to LinkedIn. What do you predict will be the biggest benefit to LinkedIn users once these changes are in place? I like the idea of being able to use Word to update my resume in my LinkedIn profile, but I'm curious to hear what new features others are looking forward to using.
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