Robust Cloud Demand Lifts Microsoft’s Fourth Quarter

Microsoft chalked up $23.38 billion in revenue during its fiscal 2014 fourth quarter, slightly above Wall Street estimates of $23 billion, on strong sales of cloud services and business software. Profits failed to meet analyst expectations, however.

The company reported net income of $4.6 billion, or $0.55 per share, for the quarter ended June 30. Wall Street analysts had expected earnings per share of 60 cents. For the full fiscal year, Microsoft generated $22 billion in profit on $86.8 billion in revenue, compared with $21.8 billion in profit and $77.8 billion in sales in fiscal 2013.

Microsoft’s Phone Hardware category, anchored by Nokia Devices and Services (NDS), contributed nearly $2 billion in sales during the quarter. The NDS acquisition, completed April 25, resulted in an 8 cents per share hit, according to the company.

Last week, Microsoft announced that it was laying off 18,000 workers. NDS is being particularly hard hit, with the loss of 12,500 positions. The effects of the job cuts are expected to linger on the company’s balance sheet in the form of a restructuring charge of $1.1 billion to $1.6 billion over the next four quarters.

Nonetheless, Microsoft CEO Satya Nadella credited brisk adoption of his company’s cloud offerings for the otherwise healthy financials. “I’m proud that our aggressive move to the cloud is paying off—our commercial cloud revenue doubled again this year to a $4.4 billion annual run rate,” said Nadella in a statement.

Echoing the sentiment, Microsoft Chief Operating Office Kevin Turner, stated that the Redmond, Wash.-based tech titan is “thrilled with the tremendous momentum of our cloud offerings, with Office 365 and Azure both growing over 100 percent again.”

During a July 22 conference call for investors, Amy Hood, chief financial officer, said that customers are putting Azure through its paces, with “storage doubling and compute tripling this year.”

Commercial sales jumped 11 percent, to $13.48 billion, while server products and Microsoft Azure sales grew by 16 percent during the fourth quarter. SQL Server and System Center experienced “double-digit growth,” as Windows volume licensing grew 11 percent, reported the company.

On the Consumer and Devices Front, Microsoft experienced an 11 percent uptick in revenue from Windows Pro OEM licenses. Consumers are flocking to Office 365 Home and Personal, the company’s cloud-enabled productivity software suite for families and individuals, to the tune of 1 million subscriptions during the quarter, for a total of 5.6 million subscribers.

In terms of hardware, the company’s Surface line of tablets accounted for $409 million in sales during the quarter, which marked the surprise launch of the new Surface Pro 3. Xbox sales grew 14 percent.

Nadella reiterated during the conference call that Microsoft will continue to support Xbox but is shutting down its Xbox Entertainment Division, the company’s stab at original streaming content, to focus on games and the Xbox Live platform.