Microsoft: Commercial Cloud a $10 Billion a Year Business

Following Amazon, Microsoft declares that its commercial cloud portfolio now contributes $10 billion in revenue to the software giant's bottom line.


Microsoft announced mixed third-quarter fiscal 2016 results April 21, but one figure is likely to stand out among IT watchers. The company revealed that its annual commercial cloud revenue has crossed the $10 billion mark, up from $9.4 billion the previous quarter.

Microsoft follows Amazon in revealing that the cloud has lifted its fortunes beyond that major milestone. In an April 5 letter to shareholders, Jeff Bezos, founder and CEO of Amazon, said Amazon Web Services (AWS), the e-tailing giant's cloud computing unit, was "bigger than was at 10 years old, growing at a faster rate, and—most noteworthy in my view—the pace of innovation continues to accelerate—we announced 722 significant new features and services in 2015, a 40 percent increase over 2014."

According to Satya Nadella, CEO of Microsoft, enterprises are flocking to his company's cloud.

"Organizations using digital technology to transform and drive new growth increasingly choose Microsoft as a partner. As these organizations turn to us, we're seeing momentum across Microsoft's cloud services and with Windows 10," said Nadella in a statement.

Today's other financial disclosures are somewhat of a mixed bag.

Microsoft reported non-GAAP revenues of $22.1 billion last quarter, a 6 percent year-over-year decline but in line with Wall Street estimates of $22.09 billion. Net income was $5 billion, or 62 cents per share, falling short of analyst expectations of 64 cents a share.

Business software continues to perform strongly for Microsoft. Largely driven by offerings like Office 365 and Dynamics CRM and ERP, the company's Productivity and Business Processes segment generated $6.5 billion in sales, a 1 percent year-over-year increase, or 6 percent using constant currency calculations that account for currency fluctuations.

Backed by the company's massive Azure cloud computing infrastructure, the Intelligent Cloud segment grew revenues by 3 percent (8 percent in constant currency) to $6.1 billion. A bright spot is Microsoft's cloud-based mobile device management (MDM) offerings, which have doubled their customer base in a year to 27,000.

Things are more turbulent over at More Personal Computing, which encompasses Windows, devices, Xbox Live and search advertising. Signaling a persistent decline in the PC market, Windows OEM Pro revenue declined 15 percent as businesses hold off on commercial PC purchases. On the other hand, consumer Windows OEM revenue climbed 15 percent.

Surface devices are strong sellers for the company, with over $1.1 billion in sales during the quarter. Microsoft's Windows smartphones continue their freefall with a 46 percent year-over-year decline in sales on a constant-currency basis. All told, the More Personal Computing segment saw its revenues climb 1 percent to $9.5 billion.

While Windows Phone isn't faring well against Apple's iPhone and a galaxy of Android devices, Microsoft has other avenues to explore in its quest for success in the mobile space.

"They have quickly pushed their mobile reach with their new device-agnostic strategy, and even though they still have twice as many users using Microsoft services on PCs versus smartphones, the mobile segment is the growth area," Hannu Verkasalo, CEO of Verto Analytics, said in a research note sent to eWEEK. "Microsoft has four significant digital brands with more than 100 million unique users monthly in the US. Skype is still big, with 84 million unique U.S. users, and OneDrive has started to compete with other cloud storage services."

Pedro Hernandez

Pedro Hernandez

Pedro Hernandez is a contributor to eWEEK and the IT Business Edge Network, the network for technology professionals. Previously, he served as a managing editor for the network of...