Microsoft Rides Cloud to a Strong Q3

Strong demand for the Azure cloud computing platform and business software helps the company beat earnings-per-share estimates.

While mostly under the leadership of new CEO Satya Nadella, Microsoft beat Wall Street analyst estimates on the company's profitability for the third-quarter fiscal year 2014 ending March 31, 2014. Nadella took over as CEO from Steve Ballmer on Feb. 4.

After market close on April 24, the software and cloud services giant announced that it had booked sales of $20.4 billion and posted net income of $5.66 billion, or $0.68 per share. Analysts were expecting earnings per share of $0.63.

Revenue was nearly in line with estimates of $20.39 billion and was up 8 percent from last year after adjusting for various offers, deferrals and a fine levied by the European Commission, according to the company. Microsoft was charged $733 million (€561 million) in March 2013 by regulators over the company's failure to provide a browser selection screen on PCs sold in Europe.

During an afternoon earnings conference call, which fell on the eve of the expected close of the $7 billion Microsoft-Nokia deal, Nadella briefly commented that the addition of the smartphone maker's personnel and technology "will enhance our device capabilities." He also reported "strong momentum in cloud services" and said Office 365 and Azure are "both performing extremely well."

Echoing the "mobile-first, cloud-first" theme that is emerging as an early hallmark of Nadella's tenure, the chief executive said in a statement that Microsoft is "making good progress in our consumer services like Bing and Office 365 Home, and our commercial customers continue to embrace our cloud solutions" and is well-positioned for long-term growth. Bing search revenue jumped 38 percent year-over-year and now accounts for 18.6 percent share of the U.S. search market. Office 365 Home has more than 4.4 million subscribers, approximately 1 million of which signed up in the third quarter.

Windows OEM revenue grew 4 percent on the strength of a 19 percent increase in Windows OEM Pro sales. Non-Pro revenue dipped 15 percent, however. Sales of the company's Surface tablet line increased 50 percent for a total of $494 million. Microsoft sold 1.2 million Xbox One consoles during the quarter.

All told, Microsoft's Devices and Consumer division generated $8.30 billion in revenue during the third quarter, a 12 percent gain over the same period last year.

The company's commercial unit posted $12.23 billion in revenue, a 7 percent improvement over the same period last year.

Microsoft Chief Operating Officer Kevin Turner said in a statement that his company continues "to win share in areas like cloud services, data platform, and infrastructure management." Windows Server, Office Commercial and SQL Server revenues were up 10 percent, 6 percent and 15 percent, respectively.

Strong demand for the company's cloud services pushed Azure revenue up a whopping 150 percent, reported the company. Microsoft CFO Amy Hood said during the conference call that the company "again outperformed the enterprise IT market."

Windows volume license sales rose 11 percent. According to Microsoft, nearly 90 percent of enterprise desktops now run Windows 7 or 8.

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...