Cloud growth continues to boost Microsoft's financials

Cloud revenue grew in the quarter ended Dec. 31, and PC sales also grew

Microsoft’s focus on the cloud continues to pay off. The tech titan showed growth across all its cloud-based businesses during the last quarter ended Dec. 31, including Office, Dynamics and Azure.

Reporting financial results for its fiscal second quarter on Thursday, the company said its Commercial Cloud business is pulling in revenue at the rate of $14 billion per year. During the previous quarter, that rate was $13 billion.

Azure growth was especially strong. Azure compute usage more than from a year earlier, and revenue from the business grew by 93 percent.

Overall, Microsoft’s revenue and profit grew year over year. The company reached nearly $24.1 billion in total sales, with net income of $5.2 billion. That's up from roughly $23.8 billion in revenue and slightly more than $5 billion in net income during the same period in 2015.

The PC market also showed strength during the quarter. Sales of premium Windows devices gained market share during the quarter, Microsoft CFO Amy Hood said during a conference call.

While much of its business did well during the quarter, Microsoft’s near abandonment of Windows smartphones remained a drag on its finances. Phone revenue fell off a cliff during the quarter, with revenue down 81 percent compared with a year earlier.

The company’s Enterprise Services revenue declined 4 percent after growing for three quarters. Microsoft blamed the reversal on businesses ending their custom support agreements for Windows Server 2003. Microsoft officially ended support for that server software in 2015, but some customers buy extended support under custom contracts.

The results didn't reveal much about the impact of LinkedIn on Microsoft's business, because the $27 billion acquisition of the enterprise social networking company didn't close until about three weeks before the end of the quarter. Microsoft said LinkedIn had $228 million in revenue during that period and lost $100 million.

Microsoft CEO Satya Nadella said the biggest job for LinkedIn going forward will be to add users and increase engagement. To that end, Microsoft will focus on quick integration between LinkedIn and products like Office and Dynamics.

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Blair Hanley Frank

IDG News Service
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