Microsoft Mints New Fortunes in the Cloud

Strong sales of Microsoft's cloud offerings turn Azure into a nearly $19 billion a year business.

Microsoft cloud

In what's becoming a familiar story out of Redmond, Wash., Microsoft posted upbeat fourth-quarter fiscal 2017 results based on the strength of its growing cloud computing operations.

Last quarter, Microsoft generated $24.7 billion in revenue, beating Wall Street analyst estimates of $24.27 billion. Net income was $7.7 billion and earnings per share came in at 98 cents, handily surpassing the 71 cents per share that financial analyst were anticipating.

Once again, Microsoft's leadership credits its fast-growing cloud software and services ecosystem for its favorable financials.

"Our commercial cloud annualized revenue run rate now exceeds $18.9 billion. This quarter's cloud growth puts us squarely on track to reach the goal we set a little over two years ago, of $20 billion in commercial cloud ARR [annual run rate] in fiscal 2018," said Microsoft CEO Satya Nadella during a July 20 investor conference call.

"Azure revenue accelerated this quarter, growing 97 percent year-over-year," as CIOs and other business leaders flock to the company's cloud, he added.

Jack E. Gold, founder and principal analyst at J. Gold Associates, noted that Microsoft is proving very effective in helping its customers make the transition to the cloud. "Microsoft has a major lead in enterprise cloud with its Azure offerings," he said, before attributing Azure's torrid growth rate mostly to demand "from enterprises deploying their corporate apps on the platform."

Essentially, businesses are rewarding Microsoft for busting down barriers to cloud adoption. "The relative ease of moving from a corporate on-premises infrastructure consisting of Windows-based servers into the Azure cloud, as well as the hybrid Azure Stack, makes deployment decisions relatively easy," added Gold.

Office 365 was another bright spot. The company's cloud-enabled productivity software and services suite saw its commercial sales jump 43 percent year-over-year. On the consumer side, Office 365 boasts 27 million subscribers.

"Positive Azure and Office 365 results are indicators that [Microsoft is] doing well in its cloud strategy. The Intelligent Cloud business continues to chug along at near 100 percent growth," Forrester Vice President and Research Director Chris Voce told eWEEK in email remarks. "The positive Office 365 results are an indicator that they've been doing well in converting customers from traditional licenses and software assurance (maintenance) to a more dependable cloud revenue stream."

Timing plays a major role in those conversion efforts. "Fiscal Q4 is a telltale quarter for Microsoft; there's a large cluster of customer Enterprise Agreements that are up for renewal at their fiscal year end, and converting them into Office 365 customers is a critical priority," Voce said.

Sales at Microsoft's More Personal Computing segment slumped 2 percent year-over-year to $8.8 billion. Windows OEM revenue rose a modest 1 percent, while Windows commercial and cloud services jumped 8 percent. Demand for Microsoft's Xbox software and services helped its Gaming division notch a 3 percent increase that offset declining hardware revenue. Surface device sales fell 2 percent.

For all of fiscal year 2017, Microsoft raked in $96.7 billion in revenue, a 5 percent improvement over fiscal 2016. Net income was $25.9 billion, a 16 percent gain, and earnings per share totaled $3.31, a 19 percent jump.

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...