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Microsoft Buoyed by Cloud, Surface, Burnt by Phones

Microsoft's fiscal second-quarter 2016 results were buoyed by success of its cloud services, and an increase in the once stagnant Surface tablet sales, but the software giant still gets no love in the mobile phone market.

"The commercial cloud opportunity is massive," stated CEO Satya Nadella on Redmond's fiscal year 2016 second quarter call Thursday. Microsoft's fiscal year ends in June.

The "cloud space is up 70% with a 9.4 billion run-rate," Nadella said on the call. "More than 70% of the Fortune 500 [companies] now have at least two Microsoft Cloud offerings," he added.

The growth in commercial cloud was "driven by both Azure and Office365," CFO Amy Hood said later on the call.

The numbers for the Azure-related segment alone look impressive. The Intelligent Cloud segment, which includes Server, Azure and Enterprise services, saw revenue grow 5% to $6.34 billion. Azure revenue grew 140%, Microsoft says, while Azure compute usage is up almost 100% compared to last year.

"The thing that we notice... is that anyone who has moved to the cloud, there is a real opportunity to move to multiple workloads over time," Nadella said of the growth of the Azure cloud computing and development platform. Users want to exploit the data they already have in Office365, Nadella noted.


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Nadella says he expects that growth in commercial cloud will come from spaces where Microsoft hasn't played so much before, such as Linux workloads, Infrastructure-as-a-Service (IaaS), Platform-as-a-Service (PaaS) and mobile cloud. (See Microsoft Aims to Create Azure IoT Ecosystem and Cisco, Microsoft Come Together in the Cloud.)

The CEO sees Microsoft's work on a commercial cloud platform, its own devices and operating systems, while opening up Office365 to Android and iOS devices, as all part of the same puzzle. "The cloud is what enables the mobility of experience across all your devices," he said on the Q&A. (See Microsoft Comms Threat to Carriers Is Growing.)

Microsoft's hybrid tablet Surface devices drove $1.35 billion in sales in the quarter, up 29% thanks to the launch of the Surface Book laptop and Pro 4 touch-screen. "We see more opportunity ahead with Surface Book coming to China, UK and Germany," said Nadella.

"We do think this tablet that can replace the your laptop is good for productivity use," Nadella said when asked on the call about anticipated growth of Surface devices in the enterprise.

Windows 10 is now installed on more than 200 million devices as well, the Microsoft CEO says. Nadella claims that there is "real excitement" for coming Windows 10 deployments for business customers.

If the uptake of tablets and Microsoft's new operating system are helping to buoy the company's device story, its smartphone outlook for is still pretty bleak. Microsoft sold 4.5 million Lumia Windows phones in its most recent quarter, compared to the 10.5 million last year, so phone revenues are down nearly 50% year-on-year.

For the quarter, Redmond reported non-GAAP revenue of $25.7 billion for its second quarter, with adjusted earnings per share $0.78. The company reported revenue of $26.5 billion and EPS of $0.71 in the year-ago quarter. Income was $6.3 billion, compared to $5.9 billion a year ago.

— Dan Jones, Mobile Editor, Light Reading

Mitch Wagner 1/29/2016 | 11:09:40 AM
Re: Burnt by Ballmer ? Time for Microsoft to just bury its Windows phone. Maybe come out with its own Android phone just to stay in the game.
abucek 1/29/2016 | 10:13:24 AM
Burnt by Ballmer ? "Burnt by phones", I guess is the one of the few remaining legacy technologies from the Ballmer / Trojan Elop era.
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