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Microsoft's continued cloud growth keeps a target on telcos

Microsoft's Azure cloud platform is much more than an operating system that can drive modern companies and its CEO, Satya Nadella, described it as such on the company's earnings call Tuesday evening.

Nadella noted that as every business becomes a digital one, they'll need "a distributed computing fabric to build, manage, secure and deploy applications anywhere." He gave a nod to 5G, too, noting that the company is helping network operators and enterprises "create new business models and deliver ultra low latency services to the end user."

While evidence of those "new" business models is scant, the spending on cloud computing, edge computing and all manners of cloud-based enterprise IT is certainly substantial.

Microsoft, now valued at more than $2.2 trillion, beat Wall Street analysts expectations for its second-quarter revenues as the company reported its earnings for the three months ended December 31 on Tuesday.

The software and cloud giant reported earnings of $2.48 a share on revenues of $51.73 billion, better than the earnings of $2.32 a share on revenues of $50.80 billion expected by analysts, on average, according to S&P Capital IQ.

(Source: Kristoffer Tripplaar/Alamy Stock Photo)

(Source: Kristoffer Tripplaar/Alamy Stock Photo)

Microsoft's shares sagged $11.19 (3.88%) to $277.30 in after-hours trading. But Dan Ives, a managing director at Wedbush Securities said on CNBC Tuesday afternoon that the sell-off is a knee-jerk reaction and his firm would be buyers of Microsoft "all day long."

After pointing out that only about a third of Microsoft's installed base has moved to the cloud, Ives reiterated that there's plenty of room for growth, despite the competition. "This is not a cloud story that's even halfway there," he said during the broadcast interview.

Microsoft Cloud revenue increased to $22.1 billion, up 32% from the year-ago quarter. This is the second consecutive quarter for Microsoft Cloud to hit $20 billion or more in revenue. "Microsoft Cloud" is a broad grouping of businesses that includes Azure, Microsoft's 365 commercial products and parts of LinkedIn and other cloud-centric businesses.

Azure and other cloud services revenue grew by 46% during the quarter, Microsoft said. Gaming revenues and Surface laptop and tablet revenues grew 8% each.

Earlier this month, Microsoft announced it intends to acquire Activision Blizzard in an all-cash transaction valued at $68.7 billion, a sign that it sees continued growth in its ability to use gaming content to feed its cloud business, in addition to sparking its console and PC hardware businesses.

That gaming empire takeover will create massive amounts of network traffic and even more demand for high-speed broadband. But, as ever, the companies profiting the most from filling the pipes aren't the ones who have to build them.

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Phil Harvey, Editor-in-Chief, Light Reading

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