Microsoft goes cloudbusting in Q2

Microsoft sees cloud services boost its net income by a yearly 33%, up to $15.5 billion, as the Redmond tech giant now cocks an eye at telcos.

Pádraig Belton, Contributor, Light Reading

January 27, 2021

3 Min Read
Microsoft goes cloudbusting in Q2

After another soaring quarter, Microsoft saw its net income rocket up by a year-on-year 33%, to $15.5 billion.

Even after the previous quarter's revenues beat predictions by $1.5 billion, the three months to December 31 still exceeded analysts' expectations.

Wall Street had expected Microsoft's revenue growth rate would slow to below 10%.

The previous quarter flattered Microsoft, with the end of support for Windows 7 feeding demand for purchasing its operating system, argued analysts.

But instead, revenues notched up a 17% gain on the same quarter a year ago.

Microsoft's earnings show a picture of a coronavirus economy where we play more games (Xbox content and services revenue increased 40%) and use more server products and cloud services (up 26%).

And one where we spend more time on Office 365 Commercial (up 21%) and LinkedIn (up 23%).

Azure skies

It was Azure that loomed largest in this cheery story for Satya Nadella's company.

Microsoft's decade-old cloud computing service is growing 50% year-over-year, at an estimated $29 billion revenue run-rate.

With much of the world again working from home – if they ever left – Microsoft's cloud offerings accordingly surpassed $16 billion in revenue, said its CEO.

This is a 34% increase in cloud earnings over the same quarter in 2019.

The results represented not just a "record quarter, driven by our commercial cloud," but the "dawn of a second wave of digital transformation sweeping every company and every industry," argued Nadella in a conference call.

Market observers, anyhow, seemed to share Nadella's enthusiasm.

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Azure "added nearly an astonishing $10 billion of annual revenue in the last year alone. The market is gigantic," marveled San Francisco investor Chetan Puttaqunta on Twitter.

And he wasn't the only investor to be impressed.

Microsoft's share price increased to an all-time high of $237.24 in overnight trading.

Go telco on the mountain

Telecom is "the last big industry to move to the cloud," says Danielle Royston, chief executive of telco cloud consultancy TelcoDR.

And Microsoft is now in a position to challenge market leader Amazon Web Services for it, she says.

The Redmond software giant acquired Metaswitch and Affirmed in the first and second quarters respectively, after it announced an "Azure for Operators" strategy aimed at the telecom sector.

"From a telco perspective, Microsoft has had quite a year," Royston argues.

It reportedly paid $1.35 billion for Affirmed Networks, which develops software for cloud-based telecommunications networks.

Another key win here is getting Deutsche Telekom to rely on Azure to modernize its IT infrastructure, a trend Nadella will be hoping more telcos follow.

Meanwhile, with Microsoft's advertising businesses also outperforming expectations, share prices have jumped in Alphabet, Facebook and other tech companies that also make money from online advertising.

Microsoft's LinkedIn, however, has had better luck in dodging the political controversies that mired Facebook and Twitter in the last US presidential elections.

And the company expects double-digit growth to continue at the income and earnings levels for the coming two quarters, says Amy Hood, its chief financial officer.

Lockdown has given the PC market its first major growth phase in ten years, with an estimated 300 million units shipped in 2020 as the pandemic turned many people to laptops to work or learn remotely.

Microsoft was a big beneficiary, already hitting the milestone of 1 billion devices running Windows 10 in March.

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— Padraig Belton, contributing editor, special to Light Reading

About the Author(s)

Pádraig Belton

Contributor, Light Reading

Contributor, Light Reading

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