Microsoft's Cloud Boosts First-Quarter Earnings

The company's commercial cloud annual run rate passes $8.2 billion as business demand grows for the company's Azure-backed software and services.


Microsoft announced today that it posted revenue of $21.66 billion during the company's fiscal year 2016 first quarter ending Sept. 30, a 7 percent year-over-year decline. Net income was $5.38 billion, or 67 cents per share, beating Wall Street estimates of 59 cents per share, a 3 percent improvement.

In what is now a familiar theme, increased demand for Microsoft's enterprise cloud services is helping the company improve its financial fortunes.

"We're seeing great traction with businesses who want to bring Microsoft's cloud, mobile device management technology and data analytics together to improve security and productivity resulting in almost 70 percent year-over-year growth in our commercial cloud run rate," said Microsoft COO Kevin Turner in an Oct. 22 statement. According to the company's figures, Microsoft's annual commercial cloud run rate now exceeds $8.2 billion.

Server and cloud services sales grew 13 percent year over year, using Microsoft's constant-currency calculations that account for foreign currency fluctuations. Revenue from the company's enterprise support services grew by 16 percent. Azure compute demand and revenue more than doubled. All told, the segments contributed $5.89 billion to Microsoft's revenue last quarter.

Forrester analyst Frank Gillett told eWEEK that while Microsoft's "cloud strategy is clearly producing benefits for them," the company's momentum has yet to pull Microsoft ahead of the pack. Nonetheless, the company's progress is commendable given its "fundamental shift from products to [cloud] services."

The cloud-enabled Office 365 commercial product portfolio saw a 70 percent increase in sales and a 66 percent increase in seats last quarter. Sales of Microsoft's Dynamics customer relationship management (CRM) and enterprise resource planning (ERP) software and cloud services suite grew by 12 percent.

Windows OEM sales dropped 6 percent, or "what you expect when you give Windows away for free," Gillett said, referencing the free Windows 10 upgrade promotion. Windows volume licensing to enterprises grew by 4 percent.

To date, 110 million "active devices" are running Windows 10, the latest version of the company's flagship operating system, said Microsoft CEO Satya Nadella during an investor conference call today. Eight million business PCs are running the new OS, he added.

Windows Phone revenue dropped a precipitous 54 percent, highlighting the company's struggles in the smartphone market. Although Microsoft's single-digit share of the smartphone market remains persistently low, there's little chance of the company ceding the market completely to Apple iOS and Google's Android mobile operating system, said Gillett. "Strategically, they can't give up on mobile."

Microsoft's Devices and Consumer unit generated $9 billion in revenue in the first quarter, a 17 percent decline compared with the same year-ago period.

Despite this, Nadella sounded an optimistic note in prepared remarks. "Customer excitement for new devices, Windows 10, Office 365 and Azure is increasing as we bring together the best Microsoft experiences to empower people to achieve more," he said echoing the company's mission.

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...